DreamWorks Animation Cuts Outlook, Discloses SEC Probe
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
July 11, 2005 1:37 p.m.
DreamWorks Animation SKG Inc. warned of a loss in the second quarter and cut its full-year outlook due to disappointing DVD and video sales of its films. The creator of the hugely successful "Shrek" franchise also disclosed that regulators are investigating trading of its stock and its first-quarter results.
The company, which was spun off from DreamWorks SKG in an initial public offering last fall, also withdrew its secondary share offering of $500 million, saying the move was in the best interest of all parties given the stock's current valuation. DreamWorks shares were down sharply Monday, falling $3.60, or 13%, to $23.21 in afternoon trading on the New York Stock Exchange.
DreamWorks Animation, Glendale, Calif., said the adjustment to its forecast follows a review of current sales and inventory data received from its distributors. The company said it has increased reserves set aside for returned products.
The lowered outlook is yet another blow for DreamWorks since early May, when the company posted a first-quarter profit well below Wall Street targets because of disappointing demand for the DVD of "Shrek 2." The animated movie, along with its predecessor "Shrek," became two of the top-grossing films in history when they played in theaters, and expectations were correspondingly high for the video market.
A series of shareholder lawsuits alleging DreamWorks misrepresented potential DVD sales -- coupled with a mediocre opening of the company's newest big release, "Madagascar" -- pulled down shares some 34% to a low of $24.75 in June.
Diminished sales of DVDs also have afflicted DreamWorks' animation rival, Pixar, which recently disclosed that unit sales of its hit film "The Incredibles" would be about 7% lower than originally thought. Pixar and DreamWorks's missteps reflect a DVD market that has become extremely difficult to predict -- DVD releases have come to mimic their box-office performance, with many titles clocking up the bulk of their sales in the first few weeks.
"As part of this review, we have observed changes in the marketplace that appear to have impacted our titles," DreamWorks Chief Financial Officer Kris Leslie said. "While it is too early to determine if these changes are temporary or permanent, we think it is prudent at this time to adjust our guidance to reflect higher-than-expected returns, as well as revisions to our video forecasts."
DreamWorks said it now expects to report a loss between seven cents and nine cents a share for the second quarter, compared with its previous forecast for "no profit" in the period, amid high returns from distributors of unsold videos.
For the full year, DreamWorks cut its forecast to between 80 cents and 90 cents a share, down from its May estimate of earnings between $1.00 and $1.25 a share. In 2004, the company earned $333 million, or $4.05 a share, with 82 million shares outstanding. At the end of March, the company had 104 million shares outstanding.
DreamWorks Animation also said the Securities and Exchange Commission was conducting an informal inquiry the related to trading of the company's shares and the disclosure of its first-quarter results. DreamWorks Animation said it is cooperating with the SEC inquiry and noted that the investigation isn't an indication that the firm violated securities regulations.
In addition, DreamWorks said there were six separate purported class-action lawsuits filed against the company in recent weeks. The company said the suits were "without merit" and plans to defend itself vigorously. One suit, filed June 2, was filed by company shareholders who accused the studio of hiding news of disappointing DVD sales of "Shrek 2." DreamWorks shares plummeted after the company's first-quarter results missed expectations.
Write to the Online Journal's editors at newseditors@wsj.com
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
July 11, 2005 1:37 p.m.
DreamWorks Animation SKG Inc. warned of a loss in the second quarter and cut its full-year outlook due to disappointing DVD and video sales of its films. The creator of the hugely successful "Shrek" franchise also disclosed that regulators are investigating trading of its stock and its first-quarter results.
The company, which was spun off from DreamWorks SKG in an initial public offering last fall, also withdrew its secondary share offering of $500 million, saying the move was in the best interest of all parties given the stock's current valuation. DreamWorks shares were down sharply Monday, falling $3.60, or 13%, to $23.21 in afternoon trading on the New York Stock Exchange.
DreamWorks Animation, Glendale, Calif., said the adjustment to its forecast follows a review of current sales and inventory data received from its distributors. The company said it has increased reserves set aside for returned products.
The lowered outlook is yet another blow for DreamWorks since early May, when the company posted a first-quarter profit well below Wall Street targets because of disappointing demand for the DVD of "Shrek 2." The animated movie, along with its predecessor "Shrek," became two of the top-grossing films in history when they played in theaters, and expectations were correspondingly high for the video market.
A series of shareholder lawsuits alleging DreamWorks misrepresented potential DVD sales -- coupled with a mediocre opening of the company's newest big release, "Madagascar" -- pulled down shares some 34% to a low of $24.75 in June.
Diminished sales of DVDs also have afflicted DreamWorks' animation rival, Pixar, which recently disclosed that unit sales of its hit film "The Incredibles" would be about 7% lower than originally thought. Pixar and DreamWorks's missteps reflect a DVD market that has become extremely difficult to predict -- DVD releases have come to mimic their box-office performance, with many titles clocking up the bulk of their sales in the first few weeks.
"As part of this review, we have observed changes in the marketplace that appear to have impacted our titles," DreamWorks Chief Financial Officer Kris Leslie said. "While it is too early to determine if these changes are temporary or permanent, we think it is prudent at this time to adjust our guidance to reflect higher-than-expected returns, as well as revisions to our video forecasts."
DreamWorks said it now expects to report a loss between seven cents and nine cents a share for the second quarter, compared with its previous forecast for "no profit" in the period, amid high returns from distributors of unsold videos.
For the full year, DreamWorks cut its forecast to between 80 cents and 90 cents a share, down from its May estimate of earnings between $1.00 and $1.25 a share. In 2004, the company earned $333 million, or $4.05 a share, with 82 million shares outstanding. At the end of March, the company had 104 million shares outstanding.
DreamWorks Animation also said the Securities and Exchange Commission was conducting an informal inquiry the related to trading of the company's shares and the disclosure of its first-quarter results. DreamWorks Animation said it is cooperating with the SEC inquiry and noted that the investigation isn't an indication that the firm violated securities regulations.
In addition, DreamWorks said there were six separate purported class-action lawsuits filed against the company in recent weeks. The company said the suits were "without merit" and plans to defend itself vigorously. One suit, filed June 2, was filed by company shareholders who accused the studio of hiding news of disappointing DVD sales of "Shrek 2." DreamWorks shares plummeted after the company's first-quarter results missed expectations.
Write to the Online Journal's editors at newseditors@wsj.com
