IMAX Earnings Preview: Here’s Why We’re Lowering Estimates

IMAX (NASDAQ:IMAX) will report Q1:12 (March) results before market open on Friday, April 27, and hold a conference call at 5:30am PT (dial-in: 866-321-6651, conference ID: 3201874, webcast: http://www.imax.com/corporate/investors).

Lowering Q1:12 estimates to reflect lower JV revenue assumptions. We expect revenue of $52 million (down from our prior estimate of $54 million), versus consensus of $54 million, and EPS of $0.11 (down from $0.13), versus consensus of $0.08. On April 2, IMAX provided a strong Q1:12 gross box office figure of $121 million worldwide that exceeded our earlier estimate and was well above Q1:11’s $62 million. IMAX does not provide forward financial guidance.

Lowering our FY:12 estimates to reflect lower box office share, in addition to lower JV revenue. Although combined Q1 box office for IMAX releases (including at non-IMAX theaters) tracked roughly in-line with expectations, our previous IMAX share estimates for 1H:12 were too high. We now expect FY:12 revenue of $304 million, down from $314 million, and EPS of $1.13, down from $1.27.

Strong release slate over the remainder of the year. IMAX’s 2011 performance was negatively impacted by an abundance of animated movies aimed at families. As a result, the company has increased the amount of fan boy releases this year, including The Avengers, The Amazing Spider-Man, Battleship (certain international markets), The Dark Knight Rises, Men in Black III, and Skyfall. In addition, The Hunger Games will be returning to North American IMAX theaters for a week on April 27, having already generated $13.2 million of box office in its original run.

Disconnect between the backlog and installation guidance. Despite a backlog of 263 theaters, FY:12 installs guidance is for 95  – 100 theaters, implying IMAX would have to install ≈ 100 theaters every year for 2.5 years just to catch up with its backlog. It continues to provide details about its plans that investors find confusing.

Maintaining our OUTPERFORM rating and 12-month price target of $27, which is based upon a 19x multiple applied to our revised 2013 EPS estimate of $1.39 EPS. Although the release slate has improved, and full year installs guidance will likely prove achievable, our PT continues to reflect a discount to IMAX’s earnings growth rate due to the uncertainty of the pace of footprint expansion.

Michael Pachter is an analyst at Wedbush Morgan.