Katzenberg Calls ‘Kung Fu Panda’ Box Office ‘Heartbreaking’ in Strong Q2 (Updated)

Revenues climbed 38 percent and profits were up 42 percent during the three-month period, which exceeded analyst expectations

Last Updated: July 27, 2011 @ 10:24 AM

Updated 4:24 p.m. PT

Thanks to the global box office performance of "Kung Fu Panda 2,"  DreamWorks Animation boasted a stronger than expected second quarter.  

But in a conference call with analysts, CEO Jeffrey Katzenberg described the film's disappointing stateside grosses as "heartbreaking." 

Katzenberg said that the studio miscalculated by positioning "Kung Fu Panda 2" as family-friendly counter-programming to "Hangover Part 2." 

"I think we had a terrible, terrible calamity in the U.S. and it's heartbreaking because there’s no recovering from it," Katzenberg said.

But the film's sluggish stateside grosses weren't the only hot topic on Tuesday's earnings call. Katzenberg was also forced to field awkward questions about the future of the studio's distribution pact with Paramount, which is scheduled to end in 2012, and growing disillusionment with 3D, the format he has long championed. 

During an hour long call with investment analysts, Katzenberg often seemed to be on the hot seat. That was somewhat ironic, because the company's financial picture was far rosier than expected, particularly given the fact that its stock has been a Wall Street underachiever in recent months.

Revenues at DreamWorks Animation climbed 38 percent to $218.3 million during the second quarter on the strength of the worldwide box office performance of "Kung Fu Panda 2," the company announced Tuesday. 

Profits for the company also increased, rising 42 percent to $34.1 million, or 40 cents per share, for the three month period ending in June.

Revenues and profits for the Glendale-based animation studio beat early forecasts. A poll of analysts by Thomson Reuters anticipated earnings of 38 cents per share on revenue of $190.7 million.

Shares rose more than 5 percent to $22.66 in after-hours trading. 

Also read: Jeffrey Katzenberg's Dilemma: Stock Woes, TV Dreams, No Buyers

"Kung Fu Panda 2," which was released on May 26, contributed $55.8 million of revenue in the quarter, generated by its worldwide box office performance as well as merchandising and licensing.

Moving away from "Panda"s' domestic doldrums, Katzenberg said that despite reports that relations with DreamWorks' distributor have grown frosty, Paramount has done "excellent" work releasing the studio's films. Though he indicated the studio would explore an extension, he said it was too early for the companies to come to an agreement. 

"What we are not going to do is move prematurely to try to answer a question that does not need to be answered yet, which is what’s next?" Katzenberg said.

A new pact with Paramount could be tricky, however, because executives with knowledge of the talks have told TheWrap that both sides remain far apart. DreamWorks wants to lower the fee it pays and Paramount has indicated it will only renew its pact for a higher distribution rate.

Further complicating matters, Paramount recently launched a new animation division. Many analysts viewed the move as a preemptive step toward preparing for a DreamWorks-free future. On the call with investors, Katzenberg downplayed that thesis. 

"I dont see this as quite the issue that everybody else is trying to make of it," Katzenberg said.

He added that Paramount's decision to get into the cartoon game, "…reaffirms the value of animation today."

As for 3D, Katzenberg described the results as mixed. He noted that the format continues to drive significant revenues for the studio, but fretted that many of the films released in 3D by competitors are of low quality. 

"I think it’s in flux and I think we're seeing a different shape and form in different places in the world today," Katzenberg said, noting that domestically the appetite for 3D has weakened, but its international expansion continues strong. 

"Even at levels that exist today [3D] is one of the best returns on investment of anything DreamWorks Animation has done," he added.

One topic that Katzenberg wouldn't touch was a rumored alliance with Netflix. Reports have been flying that the studio will break a distribution pact with HBO and allow the subscription giant to stream its films, but Katzenberg remained mum. 

"There's lots of gossip and rumors and things going on out there. I would prefer us to take a no comment on this today," Katzenberg said.