DreamWorks Animation Sluggish – Q3 Declines But Beats Forecasts

Company blames shortfalls on “Kung Fu Panda 2” middling performance; CEO Katzenberg says studio is looking into self-distribution

DreamWorks Animation continues to slog ahead with middling results, reported a 50 percent decline in income for the third quarter on Tuesday.

Revenue was also down 15 percent, largely because of the uninspiring performance of "Kung Fu Panda 2" over the summer, which took in $663 million globally.

That was below the studio's previous summer tentpole, "Shrek 4," which took in $752.6 million performance in 2010.

Income of $19.7 million was off from over 50 percent from the $39.8 million reported during the same period last year. The company's 23-cents-per-share profit in the quarter did beat investor forecasts of 20 cents per share, however.

The animation studio continues to face an endemic problem — an inability to grow much beyond where it is currently, and thus far no buyer to fold the studio into a larger entity.

Also read: DreamWorks Animation Taps Former Disney Distribution Head as Consultant

As a result, DreamWorks Animation stock usually takes a hit after every release. The stock price reached a zenith of $44 per share on March 24, 2010 and has been steadily declining since, closing at $18 a share on Tusday. 

With the "Shrek" spin-off "Puss in Boots" set to debut Friday, DreamWorks Animation CEO Jeffrey Katzenberg told investors after Tuesday's earnings report that once the company's distribution deal with Paramount expires at the end of 2012, DreamWorks will "evaluate a wide range of options" for theatrical distribution, including self-distribution.

It had also been revealed earlier in the day that DreamWorks had hired former Disney theatrical distribution chief Chuck Viane as a consultant.

Responding to an analyst's question, Katzenberg suggested his studio may self-distribute.

"The real issues about self-distribution are not the theatrical part of the business," he said. "They are to the marketing side of it, they are to the home video, they are to the international marketplace."

He noted that DreamWorks Animation's movies are dubbed to 46 languages and distributed in more than 100 countries.

"There are a lot of very complex and challenging issues to self-distribution — all of which I think are very clearly understood by us," he said.

The Glendale, Calif.-based studio reported revenue of $160.8 million for the three-month period ending Sept. 30, down nearly 15 percent from $188.9 million in fiscal third quarter 2010.

Katzenberg said that since 2006, DreamWorks Animation's 11 movies have generated $5.5 billion at the worldwide box office. "When you add in the worldwide home video as well as free and pay TV," he said, they generated $10 billion. Meanwhile, he said, "we paid roughly $700 million in distribution fees."Katzenberg also expressed optimism about the future of 3D movies.

He said that the international market for 3D movies remains strong and that the domestic market seems to be getting better.

"The good news is, we are seeing a much higher caliber of 3D films coming into the marketplace, and you'll see with that rise in quality … a rise in viewership," he said.

Earlier in the day, the company reported its third-quarter earnings Tuesday, declining in both revenue and income from the same period in 2010.

Also read: Does Wall St. Want Off the DreamWorks Animation Roller-Coaster?

The shortfall is being compared unfavorably to the studio's "Kung Fu Panda 2" ($663 million worldwidewide, with much of its $497.8 million intentional theatrical tally coming in the third quarter) versus 2010's "Shrek 4," which enjoyed much of its $513.9 million foreign gross in Q3.

DreamWorks Animation stock was down just over 6 percent to $17.20 a share in after-hours trading following the earnings release.