Avatar Helps Carmike Cinemas with Blockbuster Earnings Beat

Movie theater operator Carmike Cinemas, Inc. (CKEC) beat earnings estimates by a significant margin Monday after bell, reporting it’s most profitable quarter in over two years.  The company, which operates over 250 movie theaters containing over 2,200 screens across 36 states reported quarterly EPS of $0.48 on revenue of $137.4 million.  Street consensus had CKEC’s numbers pegged at $0.09/share on revenue of $126.2 million.  That’s a greater than 5X beat on EPS, and as you might imagine, shares are trading up big after-hours.  This is only the second time in two and a half years that CKEC reported a quarterly profit.

Unquestionably, CKEC benefited greatly from a record-setting quarter out of Hollywood that included 9 movies grossing over $100 million.  CKEC saw a 12% increase in total attendance year over year even though admission were raised 7.1%.  The company was also able to cut expenses by 16%.  However, concessions spending contracted marginally, down .9% in terms of spending per customer.  CEO David Passman was optimistic for FY 2010 “given an upcoming slate that includes many promising 3-D titles as well as highly anticipated traditional movies.”  CKEC has equipped 22% of it’s screens for 3D movies thus far.

Many in the industry, as well as on the Street, believe that the strength we are seeing out of Hollywood is due not only to mega-hits like Avatar, but our sluggish economy as well.  For many families and young adults across America, going to the movies may be a trade down from other more expensive activities.  If that is in fact the case, then barring a swifter-than-expected recovery, this trend is likely to continue.

Still, even if the trend does continue, don’t jump into CKEC unless you’ve got a strong stomach.  As you can see, Carmike is no stranger to sweeping moves in both directions, so any money you throw behind the shares should come from a more speculative part of your portfolio.  Shares gained 4.4% during regular trading and another 7.37% during the after-hours session, finishing up at $10.20.

Shares closed for the day near a potential inflection point, right at levels where they had gapped down from after the company’s last earnings report.  Now CKEC is set to open well above that point, and about 10% below it’s 52-week high of $11.54.  Since shares have already run up a fair amount, the safe bet for a trade would probably be to wait and see if shares can demonstrate some consistent strength and push through those highs.  Carmike can definitely be a good high-beta play on out-performance in the film industry, but this stock is not worth a large position in your portfolio by any means.  For a more stable, diversified play on Hollywood I would recommend Viacom (VIA-B) or Disney (DIS).

Disclosure: No holdings in CKEC, VIA-B, DIS.

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