Lions Gate Falls as `Mockingjay 2,' No Forecast Disappoint

  • Studio doesn't plan to update financial guidance until May
  • Shares decline most since 1998; Starz stock also plummets

Lions Gate Entertainment Corp. fell the most since at least 1998 after posting third-quarter sales and profit that trailed analysts’ estimates and bucking its tradition of providing an updated forecast.

The Hunger Games: Mockingjay Part 2
The Hunger Games: Mockingjay Part 2
Source: Lions Gate Entertainment Corp.

A softer performance for “The Hunger Games: Mockingjay Part 2” will drag down profit for 2016, the company said. The fourth and final “Hunger Games” movie earned $650 million worldwide in the third fiscal quarter, which ended on Dec. 31, less than the earlier Mockingjay installment. Adjusted earnings were 42 cents a share, the company said Thursday in a statement, trailing an average estimate by analysts of 51 cents a share.

The shares dropped 33 percent to $17.03 at 1:31 p.m. in New York, the biggest intraday decline since at least November 1998, according to data compiled by Bloomberg.

“‘Mockingjay 2’ is underperforming our ultimate profit margins by over $100 million, much of which hit in our guidance period,” Chief Executive Officer Jon Feltheimer said on an earnings conference call Friday.

The executives on the call pointed to recent challenges in its studio business due to rival blockbusters like “Star Wars: The Force Awakens,” which has been among the top grossing movies for the past seven weeks. 

“Part of the reason the stock is down is that the numbers keep coming down for Mockingjay,” said Amy Yong, an analyst with Macquarie Capital USA Inc.

Feltheimer said Lions Gate is tracking below its forecast for $1.1 billion to $1.2 billion in adjusted earnings before interest, taxes, depreciation and amortization in fiscal 2016, which ends in March. The company won’t provide more financial guidance until May, when it will have the results of a few other movie debuts.

Starz Deal

Lions Gate plans to restart talks to acquire Starz, about a year after buying a stake in the pay-TV network company, Bloomberg reported this week, citing people familiar with the matter. There can be no assurance a deal will occur, Lions Gate said in a filing Thursday with the U.S. Securities and Exchange Commission.

Starz dropped as much as 20 percent, the biggest intraday decline in more than seven years.

Lions Gate almost acquired Starz in December 2014 but decided not to bid because of valuation and tax concerns, people familiar with the matter said at the time. Billionaire John Malone, who controls Starz’s voting shares, is interested in merging with Canadian-domiciled Lions Gate to lower the company’s taxes.

Lions Gate declined to comment Friday on whether it has restarted talks to acquire Starz.

“The main pressure on the stock is that investors aren’t sure Lions Gate will see a big upside in the Starz deal,” Yong said. “People like to align themselves with John Malone because they think he always gets the premium in any deal action.”

The Lions Gate selloff spurred a broader retreat from entertainment stocks, including DreamWorks Animation SKG Inc., which declined as much as 9.8 percent. Viacom Inc., which owns Paramount Pictures, fell 6.6 percent, while 21st Century Fox Inc. dropped 4.1 percent. That coincided a swoon in the market, with the Standard & Poor’s 500 Index falling 1.5 percent.

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