Lions Gate Q1 Earnings Rise Over Twofold, Beat Estimates - Analyst Blog

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Shares of Lions Gate Entertainment Corp. ( LGF ) - a film and television production company - climbed 1.8% during aftermarket trading hours yesterday, as the company's first-quarter fiscal 2015 adjusted earnings of 27 cents a share rose over two-fold from 10 cents a share reported last year and also surpassed the Zacks Consensus Estimate of 13 cents.

The improvement in adjusted earnings, which includes stock-based compensation, was backed by a fall in interest expense coupled with lower tax rate. On a GAAP basis, the company delivered earnings of 30 cents per share, significantly up from 10 cents recorded in the year-ago period.

While the bottom line was impressive, the top line of this Zacks Rank #4 (Sell) stock plunged 21.1% year over year to $449.4 million. The number also fell short of the Zacks Consensus Estimate of $475.0 million.

Revenues remained soft as this quarter was highlighted by only two big/major theatrical releases, compared to three releases last year. The prior-year quarter included the blockbuster release of Now You See Me , which garnered significant revenues for the company, absent this time.

During the quarter, the company's adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of roughly $77.3 million advanced 27.1% from last year owing to relatively lower theatrical marketing expenses.

Segmental Performance

During the quarter, Motion Pictures' revenue of $331.9 million slumped 24.3% year over year, reflecting weak performances across Theatrical (down almost 52% to $42.7 million), Home Entertainment (down 17.9% to $133.2 million), International ( down 23.3% to $60.7 million), Lionsgate U.K. (down 7.4% to $30.0 million), and other revenue (down 83.4% to $6.5 million), partly offset by strong Television revenues (up 59.8% to $58.8 million).

As mentioned above, this quarter witnessed only two releases compared to three last year, leading to lower theatrical revenues. Also, the decrease can be attributed to higher revenues from Managed brands and Other titles of the company in first-quarter fiscal 2014, compared to this year. However, the decrease was partly offset by sustained revenues from Divergent, which released in Mar 2014.

The decline in the Home Entertainment and International revenues was also caused by a decrease in worldwide releases in fiscal 2015, compared with last year.

The surge in television revenue at Motion Pictures was driven by the foray of films like Enders Game and Red 2 in the television world. Other revenue at the segment fell sharply because of the absence of revenues from the sale of a part of Lions Gate's music catalogues, which took place in first-quarter fiscal 2014.

Television Production revenue slipped 10.4% to $117.5 million impacted by a plunge in revenues from domestic television (down 28% to $72.8), more than offsetting strong international revenues (up 53.6% to $34.4 million), home entertainment category (up 6.9% to $7.7 million) and other revenue (up significantly to $2.6 million).

While Anger Management, Mad Men and Orange is the New Black bolstered international revenues at the television production segment, poor timing of Mad Men episodes led to shrinking domestic revenues.

Financial Details

Lions Gate ended the quarter with cash and cash equivalents of $50.4 million with film obligations and production loans of $636.3 million and shareholders' equity of $535.8 million. Moreover, during the quarter, Lions Gate generated a free cash flow of $159.8 million.

The company's Film Entertainment backlog increased to $1.3 billion by the quarter end, from $1.2 billion last year.

Also, during the first quarter, Lions Gate announced another quarterly dividend of 5 cents a share, payable on Aug 8, 2014 to stockholders of record as of Jun 30.

Since the company's board raised its share repurchase authorization to $300 million on Dec 17, 2013, 4.7 million common shares have been bought back for a total price of $126.4 million as of Jul 25, 2014.

Hence we see that the company's results were marked by robust adjusted EBITDA, healthy free cash flows and spectacular earnings, benefiting from its solid brand portfolio, its attempt to strengthen its international footprint and gains from its business oriented collaborations with giants like CBS Corporation ( CBS ).

Lions Gate is a film studio engaged in the production and distribution of motion pictures for theater and straight-to-video release as well as television programming for cable and broadcast networks. Competing with major studios like Twenty-First Century Fox, Inc. ( FOXA ) and Time Warner Inc. ( TWX ), the company is poised for growth, given the content-friendly environment.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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