Pixar Faces Probe

The company's handling of DVD sales and estimates attracts regulatory attention.

Author:: Sandy Brown
Publish date:: Aug 26, 2005 12:57 PM EDT

Pixar

(PIXR)

, the Steve Jobs-run animation studio famous for delivering smash hits like

Finding Nemo

and

Toy Story

, reportedly is getting some attention from the

Securities and Exchange Commission

The SEC has launched an informal inquiry over the company's handling of the DVD release of

The Incredibles

, its latest blockbuster, and the retail returns that forced Pixar to

warn of a second-quarter earnings shortfall,

The Wall Street Journal

reported Friday, citing people familiar with the situation.

The news comes as rival

DreamWorks Animation

(DWA)

faces an SEC probe relating to sales and returns of

Shrek 2

. The SEC is looking into events surrounding DreamWorks' earnings debacles earlier this year.

In relaying the DVD return news to investors two months ago, Pixar cited the same home-video retail-return issues that seem to be plaguing Hollywood across the board.

Media analyst Marla Backer of Soleil Securities says that "the SEC would have been negligent had they not investigated the situation surrounding the Pixar DVD release" but adds that it would be wrong to compare the Pixar and DreamWorks situations. Still, Backer says we can expect the issue to overhang these stocks for some time.

Pixar last month warned that second-quarter earnings would miss targets thanks to faulty estimates on

The Incredibles

sales. Three weeks ago, the Emeryville, Calif., animation studio

reported earnings for the quarter, saying it made $12.7 million, or 10 cents a share, for the period ended July 2, down from the year-ago $37.4 million, or 32 cents a share. Revenue fell 60% from a year ago to $26.4 million, missing the Thomson First Call analyst consensus estimate by $5 million.

In trading Friday, Pixar shares were down 89 cents to $42.19.