Dreamworks (DWA) delivers a dud; dismal DVD sales doom quarter

On May 10, 2005, Dreamworks Animation (ticker: DWA) released results for 1Q05 and offered guidance for 2005.  DWA reported EPS of $0.44, far below the consensus estimate of $0.58.  For the year, DWA forecasted EPS of $1.00-$1.25, below the consensus estimate of $1.88.  Here are some details from the quarter:

Results 1Q05 vs. 1Q04:

• EPS: $0.44 vs. $(0.33)
• Consensus EPS was $0.58
• Revenue: $166.9M vs. $40.8M (+309%)
• Consensus revenue was $175.2M
• Gross profit: $86.5M vs. $(4.6M)
• Gross margin: 51.8% vs. -11.3% (+6,310bps)
• Operating income: $68.5M vs. $*12.4M )
• Operating margin: 41% vs. -30.4% (+7,140bps)
• Net income: $45.7M vs. $(25.5M)
• Net margin: 27.4% vs. -62.5% (+8,990bps)
• Cash: $445.0M vs. $63.1M (+605%)
• Debt: $144.3M vs. $139.2M (+4%)
• Free cash flow: $375.5M vs. $5.2M (+7,073%)

2005 Guidance:

• EPS: $1.00 - $1.25
• Previous consensus was $1.88
• All of the 2005 EPS will come in Q4, other than the $0.44 earned during Q1

Quick comments:

• DWA blamed the revenue and EPS shortfall on disappointing Shrek 2 sales, which contributed only licensing and merchandising revenues in the quarter
• Most of the year-over-year revenue and EPS increase was due to Shark Tale, which generated $142 million in revenue in Q1
• To date, Shark Tale has generated $365 million in worldwide box office revenues, ahead of the company forecast of $350 million
• DWA next film, Madagascar, opens on May 27, 2005 in 3,700 theaters
• DWA shares closed down 5% at $36.50 before the earnings release (after the market closed); DWA shares traded down another 14% in after hours trading