Lions Gate's (LGF.A) Q2 Earnings & Revenues Improve Y/Y

Lions Gate Entertainment Corp. LGF.A reported second-quarter fiscal 2018 quarterly numbers, wherein both top and bottom lines improved year over year and the latter also came ahead of the Zacks Consensus Estimate. While the stock has not shown much movement since the announcement, this Zacks Rank #1 (Strong Buy) company has gained 14.2% in the past six months, surpassing the industry’s rise of 0.6%.

Q2 Highlights

Lions Gate’s earnings came in at 7 cents per share, which fares much better than a loss of 12 cents recorded in the year-ago period, as well as the Zacks Consensus Estimate of a loss of 18 cents.

On the revenue front, Lions Gate witnessed a surge of 47.1% year over year to approximately $941 million, though it fell short of the Zacks Consensus estimate of $955 million. This can primarily be attributed to a surge in Media Networks revenues. However, on a pro-forma basis, revenues tumbled 10.3%.

The company’s adjusted operating income before depreciation and amortization (OIBDA) came in at $109 million, in comparison with negative $24 million reported in the prior-year quarter. On a pro-forma basis, adjusted OIBDA increased 66.1% year over year. The company’s filmed entertainment backlog was nearly $1.3 billion at the end of the fiscal second quarter.

Segmental Performance (On Pro-forma basis)

Media Networks’ segment formed after the acquisition of Starz reported revenues of $393.4 million, up about 7% year over year on account of continued solid performance by hit series, Power as well as gains from Outlander’s premiere. Moreover, segment profit came in at $116.5 million, up 42.2% year over year on the back of increased over-the-top revenues; reduced programming expenses and benefits from Power’s licensing. Segment profit margins expanded to 29.6% in the quarter from 22.2%.

Motion Pictures reported revenue of $385.7 million, which slumped nearly 24% due to lower theatrical and international revenues, partly compensated by improved home entertainment and television revenues. Theatrical revenues were marred by lesser featured film releases this quarter, partly negated by robust performance of The Hitman's Bodyguard. International sales fell year over year owing to absence of solid contributions from Now You See Me 2 which aided the year-ago period. On the contrary, Home entertainment revenues gained from Starz third party distribution business, partly offset by lower feature films. However, television revenues were fueled by greater contributions from feature films.

The segment logged profit of $8.9 million as against a loss of $5.9 million reported in the year-ago quarter. The improvement stemmed from lower P&A expenses.

Television Production revenues dropped 4.7% to $168.7 million, mainly due to lower domestic television sales. This was accountable to soft revenues from reality shows and unfavorable timing of episodic deliveries of Orange is the New Black. Moreover, segment profit plunged 30.1% to $8.6 million, while the segment profit margin contracted 150 basis points to 5.1%.

Financial Details

Lions Gate ended the quarter with cash and cash equivalents of $225.9 million, film obligations and production loans of $294.9 million and shareholders’ equity of $2,826.8 million. The company generated $339.4 million as cash flow from operating activities in the first six months of the fiscal.

Lions Gate, which shares space with major studios like Twenty-First Century Fox, Inc. (NASDAQ:FOXA) , is a film studio engaged in the production and distribution of motion pictures for theater and straight-to-video release as well as television programming for cable and broadcast networks.

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