Dreamworks Animation (DWA - commentary - Cramer's Take) reported better-than-expected first-quarter earnings with EPS of 28 cents and revenue of $156.6 million ahead of consensus of 24 cents and $135 million, respectively. The shares will probably lift a bit, but the next major move in the stock will be associated with the June 6 release of Kung Fu Panda. Panda will debut at Cannes in two weeks, and that should give an early indication, at least from a critical perspective.
Upside in the quarter came from solid DVD sales for Shrek 3 and Bee Movie and greater contribution form older titles. Flushed Away and Wallace and Gromit in particular look better than expected. Library revenue also may be ahead of expectations. Strength from older releases is good news for DWA shareholders, as it suggests a higher base level of earnings power.
In response to a question, management stated that negotiations with theatres on 3D installations have not made much progress in the last 30 days. This could hurt DWA earnings power in 2009 if there are not thousands of screens available for Monsters vs. Aliens, the company's first film produced in 3D, set for release in theatres on March 27, 2009.
There was little very else that was covered in either the press release or the conference call. I view DWA as a trading stock on the basis of its movie releases not a buy-and-hold investment. However, if Kung Fu Panda is a major hit (greater than $250 million in box office), the trade off the film's box office could prove greater and more sustainable than usual.
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At time of publication, Birenberg had no positions in stocks mentioned, although holdings can change at any time.Steven Birenberg is president and chief investment officer of Northlake Capital Management, LLC. Northlake specializes in managing equity portfolios using a combination of exchange-traded funds and special situation stocks. Birenberg appreciates your feedback; click here to send him an email.
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