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DWA ,,, DreamWorks Stock Dips on 'Shrek 2' Sales
Wednesday May 11, 4:24 pm ET
By Gary Gentile, AP Business Writer
DreamWorks Animation Shares Sink After 'Shrek 2' Fails to Deliver Expected Sales


LOS ANGELES (AP) -- Shares of DreamWorks Animation SKG Inc. sank more than 12 percent to a new low Wednesday after missing estimates for its first quarter profit as expected revenue from home video sales of "Shrek 2" failed to materialize.
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DreamWorks shares plunged $4.45, or 12.2 percent, to close at $32.05 in Wednesday trading on the New York Stock Exchange, below its previous low of $33.38.

The Glendale-based company reported after the markets closed Tuesday that it earned $45.7 million, or 44 cents per share, in the latest quarter compared to a loss of $25.5 million, or 33 cents per share in the same period last year. Revenue more than quadrupled to $167 million, compared to $41 million in the first quarter of 2004.

But analysts had expected net income of 58 cents per share, anticipating "Shrek 2" would be as big a blockbuster in home video as was its predecessor, "Shrek."

The company also said it does not expect to report a profit in the next two quarters and estimated that net income for the year would be between $1 and $1.25 per share.

DreamWorks Animation said it earned $9 million in the first quarter from licensing and merchandise sales related to "Shrek 2," but nothing from home video sales.

The company explained that sales of older titles declined for all films in the first quarter, which also effected anticipated sales of "Shrek 2." The better than expected sales in previous quarters was uncharted territory, leading to higher expectations, the company said.

Because of higher sales by retailers, the revenue received by the company's home video distributor was less than the costs incurred. DreamWorks Animation said it will take until the end of the year to make up the loss, resulting in $25 million, or 20 cents per share, less in revenue that had been previously forecast.

The company said "Shrek 2" sold 35 million units by the end of the first quarter and should sell 38 million to 40 million units by the end of the year.

"'Shrek 2' was, domestically, the third highest-grossing film of all time and that provides unique opportunities and also some challenges in how to manage something of that size and magnitude," DreamWorks Animation CEO Jeffrey Katzenberg said during a conference call with analysts. "As a result, in retrospect, we overestimated our first quarter catalog sales. We have learned from this. And I am hoping for a few more titles of this magnitude so we can implement the lessons we have learned."

The company's next film, "Madagascar," opens in theaters May 27.

Executives said they were confident in their business model, pointing out cash flow during the first quarter of $377 million.

"The fundamentals of our business are fantastic," Katzenberg told the Associated Press.





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