Profit Sinks at Activision

Investors appeared surprised and disappointed by the company's report. In recent after-hours trading the company's stock was off more than 7% to $13.30.

In the company's third quarter, which ended Dec. 31, it earned $67.9 million, or 23 cents a share. That was down 30% from the $97.3 million, or 39 cents a share, in the year-prior quarter.

In contrast to the earnings decline, sales jumped 20% year over year to $816.2 million.

While sales topped Wall Street's revised expectations, earnings fell far shy. On average, analysts polled by Thomson First Call were expecting the company to earn 36 cents a share in the just-completed quarter on $707.1 million in sales. Activision warned in December that its results for the holiday period would be "significantly lower" than its previous guidance of 52 cents a share on $790 million in sales but did not give a specific new forecast.

Looking forward, Activision predicted "weaker than expected market conditions." In its current, fourth quarter, the company now expects to lose 7 cents to 9 cents a share on sales ranging from $125 million to $135 million.

Wall Street had predicted that Activision would earn 2 cents a share in the current period on sales of $198.3 million. In the same quarter last year, the company earned $3.6 million, or about 2 cents a share, on sales of $203.9 million.

The company also sketched out its expectations for its next two fiscal years. In fiscal 2007, the company forecast revenues "slightly" above $1 billion and a "modest" increase in earnings per share over the 9 cents to 11 cents it expects to earn this fiscal year. For fiscal 2008, Griffith predicted $1.6 billion in sales; Griffith and other Activision executives declined to give a prediction of the company's earnings for that year.