With DreamWorks Animation's (DWA) fourth-quarter earnings on tap Tuesday afternoon, the newly reorganized studio is still struggling with the loss of this year's best animated film Oscar to a Disney (DIS) flick, and CEO Jeffrey Katzenberg has few options for survival outside of a takeover.
The Street expects a fourth-quarter loss of $3.01 per share on revenue of $246.2 million when DreamWorks reports after the closing bell, according to Thomson Reuters' estimates. DreamWorks shares were up about 0.4% at $20.71 in midday trading, toward the bottom of a 52-week range of $18.16 to $35.37, as several analysts have the stock rated a sell. DreamWorks is down 7.2% year-to-date and about 30% in the past year.
The studio recently sank about $1 million into lobbying for How to Train a Dragon 2 to win an Academy Award, part of a broader effort to revive enthusiasm for its animated films, but Disney's Big Hero 6 nabbed the Oscar. And few believe that DreamWorks' next release, Home, will fare better at the box office against Disney's next offering, a live-action Cinderella re-boot.
"Given DWA's track record of late in originals, we have already decreased our [gross box office] ultimate on Home from $510 million down to $400 million," said Topeka Capital Market's David Miller in a note. The firm rates DWA a sell, with a price target of $17.
Home, a 3-D computer-animated film based on a children's book about an alien invasion, is scheduled for release March 27, when Disney's new Cinderella will be in its third weekend. Home will also face competition from Summit Entertainment's young adult movie, Insurgent, released March 20.
As DreamWorks grapples with its rivals, its recovery options are few. The studio has already failed to impress investors with a desperate restructuring that cut 18% of its workforce, or about 500 workers, last month. Miller expects a $217 million fourth-quarter cumulative restructuring charge as DreamWorks shutters its Redwood City, Calif., studio and pays out severance to hundreds of laid-off story board artists and animators.
The restructuring is expected to generate $60 million in annual savings by 2017, but Goldman Sachs' analyst Drew Borst says that's still not enough to address the real issue: unruly production cots. "The restructuring fails to address the high production cost for DWA's films; high in terms of animation peers and high relative to the DWA's recent box office performance," Borst said in a note.
Other write-downs this quarter could include a roughly $80 million charge for the lower-than-expected gross box office earnings from The Penguins of Madagascar and Mr. Peabody & Sherman.
TheStreet Ratings team rates DREAMWORKS ANIMATION INC as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate DREAMWORKS ANIMATION INC (DWA) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its weak operating cash flow and generally disappointing historical performance in the stock itself."
You can view the full analysis from the report here: DWA Ratings Report
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.