Skip to main content

Updated from July 26

Electronic Arts


reported first-quarter results Tuesday that beat Wall Street estimates. But the video-game software maker lowered its outlook for the full fiscal year to reflect a delay in the release of

The Godfather


EA shares were recently off 0.3% to $58.82.

As widely expected, the Redwood City, Calif.-based video-game software maker lowered its guidance for fiscal year 2006, which ends in March. The company said it expects GAAP and non-GAAP earnings of $1.45 to $1.60 a share on sales of $3.3 billion to $3.4 billion.

Previously, the company had forecast earnings of $1.55 to $1.70 a share on sales ranging from $3.4 billion to $3.5 billion, representing a 9% to 12% revenue increase. Wall Street analysts most recently were expecting earnings of $1.63 a share on $3.4 billion in revenue for fiscal 2006.

On a postclose conference call, CFO Warren Jenson said the delay in launching

The Godfather

, combined with the impact of changing exchange rates prompted the lower guidance. He declined to detail the specific impact of each on the top and bottom lines.

"We were disappointed by the delay in launching


. Nevertheless, it was the right thing for the long-term strength of this key franchise," he said.

Blaming production issues, the company warned earlier this month that it won't ship

Scroll to Continue

TheStreet Recommends

The Godfather

until the first calendar quarter of next year, which is the company's fourth quarter. The delay means the game will miss out on the crucial holiday sales season and have one less quarter of sales results in this fiscal year.

Also earlier this month, EA renewed its licensing deal with John Madden in a deal that keeps his face on its market-leading National Football League game while likely adding some cost to the title for EA. The company already had warned that exclusive licensing deals signed with the NFL and


(DIS) - Get Walt Disney Company Report

ESPN sports media division will kick in this year and drive up some of its costs in the near term.

On the flip side, EA has announced a deal with independent developer Valve to publish and distribute the company's top-selling

Half Life 2

game -- which was already figured into guidance -- and more recently was granted the rights to develop additional

Lord of the Rings

games based on characters in the novel that were not in the recent movie trilogy.

For the second quarter, Electronic Arts said it expects revenue to range from $600 million to $630 million, GAAP earnings to be flat and non-GAAP earnings to be 5 cents a share. Analysts' estimates last called for Electronic Arts to post $620.9 million in sales and a penny a share in earnings in the second quarter.

In the first quarter, which ended June 30, EA reported a loss of $58 million, or 19 cents a share. That reversed net income of $24 million, or 8 cents a share, in the same period a year earlier as EA beefed up development of games for next-generation video game consoles, slated to start hitting store shelves before the holiday season.

Excluding charges, EA had a pro forma loss of $55 million, or 18 cents a share, for the quarter, compared with pro forma net income of $25 million, or 8 cents a share, a year earlier. Analysts polled by Thomson First Call were expecting the company to lose 24 cents a share; the company's guidance called for a loss of 22 cents to 28 cents a share.

The company said first-quarter revenue dropped 16% to $365 million from $432 million a year earlier. That beat the consensus estimate of analysts who called for $326.8 million in sales and Electronic Arts' target of $300 million to $340 million.

"Please remember, we are investing ahead of next-generation revenue," Jenson told investors on the conference call.

As EA develops games for the launch of the Xbox 360 game console in November and PlayStation 3 next year, the company booked a 40% jump in research and development costs in the first quarter, to $183 million. R&D headcount is up 40% to 4,500 employees and is expected to reach 5,100 employees at the end of the fiscal year, the company said.

But EA is projecting console sales sit flat to up a modest 5% in 2005 given that the first next-generation console --


(MSFT) - Get Microsoft Corporation Report

Xbox -- won't hit store shelves until the tail end of the year. Declining software sales and increased costs are largely typical during the transition period before the launch of the next generation video-game consoles.