World Wrestling Earnings Miss Our Estimates

| About: World Wrestling (WWE)

World Wrestling Entertainment Inc. (NYSE:WWE) recently reported fourth quarter results (see conference call transcript here). The company witnessed a 17.8% decline in earnings to $11.2 million from $13.6 million in the year-ago period. Earnings per share came in at 15 cents, missing the Zacks Consensus Estimate by 17%, or 3 cents.

The company posted a 6.5% reduction in revenues to $117.3 million, compared to $125.4 million in the prior year quarter. In terms of segments, Consumer Products division recorded a decline of 31.8% to $22.7 million due to sluggish home video and licensing revenues, while Digital Media segment slid 2.8% as a result of lower online merchandise sales. Moreover, revenue from WWE Studios segment dipped to $0.2 million from $5.0 million in the year-ago quarter.

However, Live and Televised Entertainment segment was the only bright spot, which logged a growth of 10.4% year-over-year increase in revenues to $83.8 million. The growth was primarily driven increased number of live events, higher television rights fees and pay-per-view revenues.

In terms of geographic regions, WWE’s North American revenues reduced by 14.5% to $79.5 million from $93.0 million in the year-ago quarter. However, this was partially offset by a 7.7% increase in the Europe, Middle East and Africa (EMEA) region to $26.7 million coupled with a 20.7% growth in the Asia Pacific region to $7.0 million. Revenues in Latin America also grew to $4.1 million from $1.8 million in the year-ago quarter.

Gross profit (revenues less cost of revenues) declined 4.6% year-over-year to $53.7 million, however gross margin grew by 90 basis points (bps) to 45.8%. The improvement in gross margin was primarily the result of lower costs in marketing and TV production.

Selling, general and administrative expenses rose 10.2% year over year to $32.4 million due to higher incentive compensation and bad debt reserves. Accordingly, operating income declined by 23.5% to $17.8 million, while operating margin dipped by 340 bps to 15.2%.

WWE ended the quarter with cash and cash equivalents of $149.8 million, compared to $119.7 million in the year-ago period. During the year, the company deployed $82.3 million towards payment of dividends and $5.4 million towards capital expenditure. WWE also utilized $54.6 million towards purchasing marketable securities over the same period, while proceeds from matured investments were $53.7 million.

Moving forward, WWE expects earnings to grow at an average annual rate of 15% to 20% through 2012. This calculates to full-year 2010 earnings of roughly 78 cents to 82 cents per share. The Zacks Consensus Estimate is currently pegged at 80 cents per share, which moved up a penny over the past month as 1 of 6 covering analysts raised expectation.

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