Loss, View Weigh on Activision

The video game publisher swings to a loss from a year ago.
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Updated from 4:54 p.m. EST

Activision

(ATVI) - Get Report

reported a loss for its fiscal second quarter, after a year-ago profit, as sales fell 28%.

Still, the company's results topped the Street's expectations Wednesday. And bucking a trend in the industry, the company reaffirmed its guidance for the current, holiday quarter and for the full year.

Investors, though, focused on the negative. In recent after-hours trading, the company's stock was off 49 cents, or about 3%, to $16.32.

In the quarter ended Sept. 30, the video-game software publisher lost $13.2 million, or 5 cents a share. In the same period last year, the company earned $25.5 million, or 10 cents a share.

Sales slipped to $222.5 million in the second quarter, from $310.6 million a year earlier.

On a conference call, Mike Griffith, CEO of Activision's publishing division, blamed the sales decline on tough comparisons with last year. The company had a big hit last year with

Spider-Man 2

, which helped boost sales and earnings, he noted.

Wall Street had expected Activision to do significantly worse. On average, analysts polled by Thomson First Call were expecting the company to post a loss of 7 cents a share on sales of $203.8 million.

The company in July predicted a loss of about 8 cents a split-adjusted share on $200 million in sales.

Looking forward, the company reiterated the third-quarter guidance it gave back in July; the company expects to earn about 52 cents per split-adjusted share on $790 million in sales. For the fourth quarter, the company expects to earn 5 cents a share on $226 million in sales.

Activision also repeated its full-year earnings estimate of 52 cents a share, but raised its revenue outlook to $1.48 billion from $1.47 billion.

Those figures fall below analysts' estimates, fourth-quarter guidance in particular.

Wall Street predicted a profit of 53 cents a share in the holiday quarter on $799.8 million in sales and earnings of 8 cents a share on sales of $244.8 million in the fourth quarter.

For the full year, analysts had forecast earnings of 54 cents a share on sales of $1.49 billion.

Last year, the company earned about 35 cents a share, split-adjusted, on $680.1 million in the fiscal third quarter and about 2 cents a share on sales of $203.9 million in the fiscal fourth quarter.

Activision's guidance for the fourth quarter is lower than the outlook implied by its previous earnings estimates, Griffith acknowledged. The company decided to delay shipping a version of

Gun

, a new title, for the PlayStation Portable until next fiscal year, he said, accounting for the difference. Previously, Activision had planned to ship the game in the fourth quarter.

In the just-completed second quarter, Activision's bottom line turned from black to red, due not only to a fall in sales, but to increased costs. Product development costs, for instance, jumped 41% in the quarter, general and administrative costs rose 45% and sales and marketing costs increased 6%.

Like other video game companies, Activision has been investing in the development of next generation games and technology. Meanwhile, the company has been building up its sales infrastructure in Europe, explaining the rise in administrative costs.

Activision's cash and short-term investments fell to $750.2 million at the end of the second quarter from $785.9 million at the end of the first quarter. Griffith blamed the drop on the timing of expenses as the company gears up to roll out seven new titles in the holiday quarter.

Like rivals such as

Electronic Arts

(ERTS)

,

Take-Two Interactive

(TTWO) - Get Report

and

Midway Games

(MWY)

, Activision officials reported somewhat weak demand for the company's games by retailers. But company CEO Bobby Kottick said the situation is similar to what the industry has been seeing for years, as retailers look to shrink the amount of inventory they have on hand.

The company plans on releasing five franchise titles in the holiday quarter, including new iterations of its

Tony Hawk

,

Shrek

and

Call of Duty

games. Management is "actively monitoring" demand and plan to shift shipments depending on how the holiday season plays out, Griffith said.

"On the execution side, we feel very good about where we are," he said.

Shares of Activision closed regular trading up 62 cents, or 4%, to $16.81.