Dreamworks says weak "Shrek" hurt Q2

LOS ANGELES – Shares in DreamWorks Animation SKG Inc sank on Thursday after a senior executive warned that "Shrek's" disappointing box office and a barren home video pipeline had hurt second-quarter profit.

The stock slid as much as 6 percent after chief financial officer Lew Coleman told investors in Chicago that DreamWorks' quarterly earnings per share will be "meaningfully below" the year-ago quarter's.

But it bounced back in after-hours trade, recouping all regular-session losses.

"People will re-focus on the film slate ahead of the company," said Tony Wible, analyst with Janney Capital Markets. "Its a fairly good slate."

Dreamworks slate of upcoming movies includes the Will Ferrell vehicle "Megamind" due in November.

Wall Street analysts had expected DreamWorks' second-quarter earnings per share to rise as much as a third from the year-ago period's 30 cents a share, according to Thomson Reuters I/B/E/S.

"Shrek Forever After" -- the fourth and final installment in the lucrative "Shrek" franchise revolving around the adventures of a green ogre -- has made more than $213 million in the United States and Canada since it opened on May 21.

But that was below the roughly $285 million the last "Shrek" movie had earned over the same number of days.

Analysts said Wall Street might have underestimated the amount spent on marketing. Revenue at the box office is typically very closely charted, but the amount that studios spend on promoting and distributing a film is less clear.

Coleman said that most of the revenue for "Shrek Forever After" will come in the second half of the year, when the film opens in several major international territories and after it comes out on home video.

He also cited the lack of a major video release in the spring as a reason the company underperformed in the second quarter.

"Although we still have a couple of weeks remaining in the quarter, we believe as of today that the company is likely to deliver second-quarter earnings per share that are meaningfully below our reported EPS for the second quarter of 2009," Coleman said.

FRANCHISE DEPENDENT

Shares in DreamWorks closed down 4.1 percent at $27.08 on Nasdaq. But afterhours, they traded at $28.24.

DreamWorks, like other Hollywood studios, is dependent on film franchises to drive growth. But as the "Shrek" series draws to a close, the company is losing what has historically been its most profitable franchise.

Going forward, the company has high hopes for the franchise potential of "How To Train Your Dragon," building on the success of that animated 3D film that came out in March, which has made more than $470 million worldwide.

Coleman said when it comes to consumer products such as toys, "How To Train Your Dragon" is generating nearly twice the revenue expected in that segment from "Shrek Forever After."

Wible said that much of DreamWorks' disappointing performance this quarter is already priced into the stock, which has fallen nearly 40 percent since its high-point in March at $44 a share.

"The nice thing about the box office is you get data every day, so I don't think it's a complete surprise" to investors that second quarter revenue is down, said Wible, who has a "neutral" rating on DreamWorks.

But he said that what may not have been priced into the stock is DreamWorks' marketing costs for "Shrek Forever After" and "How To Train Your Dragon." Those expenses may have surpassed what the company spent on past films, given Coleman's warning.