DreamWorks Trails Estimates on ‘Madagascar,’ Shares Slip

DreamWorks Animation SKG Inc. (DWA), the independent film studio, fell the most since May after second- quarter results missed analysts’ estimates on lower-than- expected results related to “Madagascar 3.”

DreamWorks Animation tumbled 6.3 percent to $17.99 at the close in New York. The stock has gained 8.4 percent this year.

“Madagascar 3: Europe’s Most Wanted,” one of just two DreamWorks Animation releases this year, has generated $501 million worldwide, according to researcher Box Office Mojo. That lags behind 2011’s “Kung Fu Panda 2,” which had topped $600 million at this point. The movie is still opening in some countries because of delays tied to the Olympics, Chief Executive Officer Jeffrey Katzenberg said.

“DreamWorks experienced some weaker performance on international relative to expectations, partly because of timing,” Tony Wible, an analyst at Janney Montgomery Scott LLC in Philadelphia, who recommends selling the stock, said in an interview.

The company’s distributor, Viacom Inc. (VIAB)’s Paramount Pictures, also boosted marketing outlays, meaning less money for DreamWorks Animation, Wible said.

Net income shrank 63 percent to $12.8 million, or 15 cents a share, from $34.1 million, or 40 cents, a year earlier, Glendale, California-based DreamWorks Animation said yesterday in a statement. Analysts projected 25 cents, the average of 11 estimates compiled by Bloomberg.

Second-quarter revenue fell 25 percent to $162.8 million, missing analysts’ estimates of $188.6 million.

Distribution Accord

“All of DreamWorks Animation’s sequels have surpassed $600 million at the worldwide box office and ‘Madagascar 3’ is on track to do the same,” Katzenberg said on a conference call, adding the company sees “considerable runway left here on the film.”

The movie opened on June 8 in the U.S. and Canada.

DreamWorks Animation expects to announce a new theatrical distribution agreement with a major Hollywood studio by the U.S. Labor Day holiday, according to Katzenberg. The studio has mostly abandoned plans to self-distribute when its current agreement with Paramount ends this year, he said.

Katzenberg, 61, also said Paramount has been accelerating marketing expenditures, “in a way they haven’t done up until now,” which delays DreamWorks’ receipts. “It’s timing issues, nothing more,” he said on the call.

The company is taking steps to diversify beyond movies and home entertainment, with efforts in television and live shows, foreign investment and technology.

Tomorrow’s Marvel

Those include a wide-ranging venture in China, plans for an amusement park in New Jersey and the $155 million purchase last month of Classic Media, owner of rights to cartoon characters Casper the friendly ghost, Rocky the flying squirrel and his pal, Bullwinkle the Moose.

Katzenberg likened the Classic Media portfolio of characters to those of Marvel Comics 15 years ago, and said the properties will help the company advance efforts to create a DreamWorks branded television channel.

“I think we put some booster jets on the company,” Katzenberg said.

He also said the company plans announcements in coming months on initiatives in casual games, social media and applications.

“On the positive side, these guys have articulated some growth strategies,” Wible said. “The Classic Media purchase is really interesting, especially the notion of crafting a television channel, or a digital channel, as key way of diversifying away from some of the risks plaguing the film side.”

To contact the reporters on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net; Rob Golum in Los Angeles at rgolum@bloomberg.net

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

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July 23 (Bloomberg) -- Jeffrey Katzenberg, chief executive officer of DreamWorks Animation SKG Inc., talks about the company's distribution plans for its movies, its agreement to buy Classic Media, and diversification initiatives. Katzenberg speaks with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)