IMAX Gets Small

Can you nail earnings guidance and badly miss market expectations? Of course. For IMAX (NASDAQ:IMAX), projecting that September-quarter earnings would come in between $0.04 and $0.07 a share certainly gave the range enough room to produce feast or famine. The company had earned a nickel per share a year earlier, so the bottom-line targets allowed for anything between a 20% dip and a 40% gain in net income.

Analysts chose to land on the upbeat side, betting on $0.07 per share. That could be a problem, since the company simply duplicated the previous year's profitability of $0.05 per share.

Thankfully, IMAX continues to grow its presence. The third quarter marked the company's fifth consecutive period of double-digit screen deals. The company has inked deals to open 37 new screens worldwide through the first three quarters of this year, more than it has during any single year since the 1990s.

That's important for two reasons. First, installations remain the company's largest revenue contributor. Second, the larger installed base makes it easier for the company to milk a larger profit on new releases. For instance, an IMAX-enhanced and remastered version of Time Warner's (NYSE:TWX) Harry Potter and the Goblet of Fire will open in 70 IMAX screens later this month. The company had just 49 theaters airing the last Potter installment last year.

IMAX was recently selected by the Motley Fool Rule Breakers growth-stock newsletter service. Flat earnings growth on a per-share basis, and top-line growth of 5%, may not seem all that heady. But IMAX has a growth-generating ace up its sleeve. Its DMR technology lets the company create jumbo-sized versions of Hollywood blockbusters at the same time they're released on smaller multiplex screens. DMR revenues were up 31% for the period; they should continue to grow in the fourth quarter with Harry Potter and the rerelease of Polar Express in 3D.

Polar Express was a hit for the company last year, despite its lukewarm reception in traditional movie theaters. Last week, I asked IMAX Co-CEO Rich Gelfond about that. The Passion of the Christ was a huge hit the first time around, but a disappointment the following year in its second theatrical run, after the film was already out on DVD. Would this month's DVD release of Polar Express doom it on IMAX? Gelfond argued that it wouldn't be the same. In fact, marketing of the DVD release will also pitch the film's enhanced IMAX run through the holiday season. Let's hope he's right; if the film's IMAX version becomes a holiday staple with families, it could really beef up the company's bottom line, since the film's mastering costs were borne last year.

So here's to happy holidays for IMAX, and a plea for tighter -- and higher -- profit projections in the future.

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Longtime Fool contributor Rick Munarriz didn't see Polar Express at the multiplex or at an IMAX screen last year. He actually caught it with his family at the drive-in. He does not own shares in any of the companies mentioned in this story. Time Warner is aMotley Fool Stock Advisorpick. The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.