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Coinstar Drops After Sales Miss Estimates on Redbox DVD

Coinstar Sales Miss Analyst Estimates as Weak Films Hurt Kiosks
Paul Davis, chief executive officer of Coinstar, Inc., participates in the Nasdaq MarketSite opening bell ceremony in New York. Photographer: Jin Lee/Bloomberg

Coinstar Inc., owner of the Redbox DVD rental machines, fell the most in almost three months after third-quarter sales and the company’s outlook for the rest of 2012 missed analysts’ estimates.

Coinstar, based in Bellevue, Washington, declined 5.3 percent to $40.92 at 9:32 a.m. New York time, following the third-quarter report and forecast yesterday after the markets closed. The stock dropped as much as 6.3 percent, the biggest intraday drop since July 30.

Chief Executive Officer Paul Davis cited “temporary headwinds” tied to a weak slate of new films in the home-video market and competition for viewers from the summer Olympics. Coinstar, owner of the largest DVD-rental service, and Verizon Communications Inc. are testing Redbox Instant, combining streaming to TVs and smaller devices with DVD rentals. Verizon has said the service will start by Christmas.

“We knew going into the quarter that we didn’t have great new release content,” Chief Financial Officer Scott Di Valerio said in an interview. “We had nine weeks in that time period in what is traditionally one of our highest rental periods, where we had two or less new titles in the kiosks, and they certainly weren’t the best titles.”

Third-quarter revenue rose 15 percent to $537.6 million, Coinstar said yesterday in a statement. That missed the $557.4 million average of 14 analysts’ estimates compiled by Bloomberg. Profit excluding some items totaled $1.26 a share, beating analysts’ projections of $1.17. Net income fell 1 percent to $36.8 million, or $1.14 a share, from $37.1 million, or $1.18, a year earlier.

Fourth Quarter

Fourth-quarter earnings will come up short of analysts’ projections. The company forecasts profit of 62 cents to 77 cents a share, excluding items, compared with analysts’ projections of $1.05 a share, the average of 13 estimates. Sales will be $552 million to $602 million, the company said, compared with estimates of $599.7 million.

Redbox plans to buy more copies of movies to make sure customers get the films they want after a drop in traffic to kiosks in the third quarter, according to Michael Pachter, an analyst with Wedbush Securities Inc. in Los Angeles.

“Probably they’ve been getting complaints about people not getting the movies they want to see,” said Pachter, who has an outperform rating on the stock. “Now, they’ve decided to keep these customers happy and give them what they want.”

Better Movies

Coinstar expects a better response to fourth-quarter titles including “Marvel’s The Avengers” from Walt Disney Co. and Sony Corp.’s “The Amazing Spider-Man,” Di Valerio said.

The company and Verizon said in a separate statement an agreement to put titles from Time Warner Inc.’s Warner Bros. on the Redbox Instant system, the first such deal with a major studio to be announced, according to Di Valerio. Newer films will available for purchase and rental; older pictures will be part of subscription streaming. The service is being tested with company employees and will go public by year-end.

Warner also agreed to provide movies to Redbox kiosks for rent 28 days after they go on sale. Coinstar previously had no agreement with Warner and purchased titles from retailers to stock their machines.

Redbox Instant will offer a la carte movie rentals and purchases for download, in addition to subscriptions, Eric Bruno, Verizon’s vice president of strategy and planning for consumer and mass business markets, said in an interview last month. The companies haven’t set a start date or prices.

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