Lions Gate Banks on Blockbusters to Attract Investors

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Lions Gate Entertainment Corp. (NYSE:LGF) closed Thursday’s regular session down 4.97 percent on the day at $33.82 per share but rebounded slightly in early trading on Friday after reporting fiscal second-quarter 2014 results. In a word, the results were mixed, but the company ultimately ended up walking out of the quarter with a pretty good posture.

Revenue declined 29 percent on the year to $498.7 million, missing the mean analyst estimate of $528.85 million. The miss is underwhelming, to say the least, but padded in part by the nature of the comparison. Fiscal second-quarter 2012 included the home entertainment release of The Hunger Games, which is a revenue-generating force of nature.

The first film in the series has grossed $691.2 million worldwide on a budget of $78 million, a return that we would call “not too shabby.” And with that in mind, the next film of the franchise, Catching Fire, will be released worldwide on November 22. The final two films in the franchise are scheduled to be released in November 2014 and 2015, and are each expected to provide a reliable (if not increasing) revenue bump.

Lions Gate’s net income for the fiscal second quarter was 0.5 million, or 0 cents per share. This, though again somewhat underwhelming, is better than the loss of 8 cents per share that analysts were forecasting. Adjusted net income — which excludes stock-based compensation, early extinguishment of debt, and a tax benefit — was 19 cents per share, down from 62 cents per share in the year-ago quarter.

“We completed a strong first six months of the year with a solid second quarter in which we generated robust free cash flow, continued to delever our balance sheet and lowered our interest expense,” said Lions Gate CEO Jon Feltheimer. “We’re on track for another very good year.”

Perhaps foreshadowing some of this future success, Lions Gate announced earlier this week that it has entered into a multiyear licensing agreement with Jiaflix Enterprises, which will allow classic Lions Gate and Summit films to be available on M1905.com, “China’s official streaming Website.” The deal will increase Lions Gate’s exposure to the Chinese market, which — because of the political environment — can sometimes be difficult for an entertainment company to operate it.

Year to date, Lions Gate stock is up more than 90 percent, although shares have lost some momentum of late. Although the firm is part of the entertainment pantheon, it faces enormous competition from the likes of Disney (NYSE:DIS). Disney stock has seen more modest growth of 31.4 percent, but Disney is also a much larger and more stable company with, arguably, bigger things in the pipeline.

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