DreamWorks Animation Falls Most Since May 2010 After Profit Declines 72%

DreamWorks Animation SKG Inc. (DWA), maker of the “Kung Fu Panda” films, retreated the most in almost two years in Nasdaq trading after reporting a 72 percent drop in fourth-quarter profit, missing analysts’ estimates.

DreamWorks Animation fell 10 percent to $17.68 at 10:28 a.m. in New York. The intraday drop of as much as 11 percent was the biggest since May 24, 2010.

Analysts at Goldman Sachs advised investors today to sell shares of the Glendale, California-based DreamWorks Animation. The company reported yesterday that net income fell to $24.3 million, or 29 cents a share, from $85.2 million, or 99 cents, a year earlier, on lower DVD sales. Analysts had projected profit of 31 cents, the average of 13 estimates compiled by Bloomberg.

“Kung Fu Panda 2,” one of two films DreamWorks Animation released in 2011, reached the home-video market in mid-December. Michael Pachter, an analyst at Wedbush Securities in Los Angeles, cut his profit estimate in a Feb. 24 note, citing weak holiday demand for DVDs. This month, DreamWorks Animation announced plans to develop entertainment products in China.

“The overall home-entertainment environment remains challenging,” Chief Executive Officer Jeffrey Katzenberg said on a conference call. Consumer purchases of digital copies of movies remain “modest,” he said.

Fourth-quarter sales declined 21 percent to $219 million from $275.7 million a year earlier, beating analysts’ average estimate of $205.1 million.

Earnings Estimate

Goldman Sachs today also cut its earnings estimates on DreamWorks Animation, citing higher production costs and lower consumer-products revenue.

DreamWorks Animation plans to announce new distribution arrangements for its films by midyear or later, Katzenberg said. Viacom Inc.’s Paramount Pictures distributes DreamWorks Animation movies under a deal that expires at the end of this year.

“We are looking at this as a major strategic opportunity for us,” Katzenberg said. “We think there are a number of different options. And we want to explore each and every one of them.”

To contact the reporter on this story: Anthony Palazzo in Los Angeles at apalazzo@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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