Lions Gate Posts Strong 2Q

Lions Gate Entertainment Corporation ( LGF - Analyst Report ) recently posted a robust second-quarter 2012 results. The quarterly earnings of 53 cents a share substantially exceeded the Zacks Consensus Estimate of 8 cents. Moreover, earnings witnessed a significant improvement from a loss of 27 cents reported in the comparable prior-year period.

Lions Gate’s strong performance in the quarter was the result of solid double-digit growth in revenue, mainly due to healthy box office result and home entertainment revenue.

Total revenue soared 97% year over year to $707.0 million, and also surpassed the Zacks Consensus Estimate of $619.0 million. The better-than-expected year-over-year growth was witnessed due to hearty response at the box office from the films such as ‘The Possession’, ‘The Expendables 2’, ‘Step Up Revolution’ and ‘Madea’s Witness Protection’, along with strong performance at home entertainment by global blockbuster ‘The Hunger Games’. The revenue was also boosted by healthy growth in the revenue of international market.

Segment Performance

Motion Pictures’ revenue of $608.0 million surged 178.0% from $218.9 million in the prior-year period. This segment includes the revenues of ‘Theatrical’, ‘Home Entertainment’, ‘Television’, ‘International’, ‘Lionsgate UK’, and ‘Mandate Pictures.

Theatrical category revenue surged to $116.2 million compared with $22.3 million in the prior-year quarter. The increase was due to good response at the box office for the films released in the month of June.

Home Entertainment category’s revenue augmented 117.5% to $261.9 million against $120.4 million in the comparable quarter last year, mainly driven by the release of ‘Hunger Games’ during the quarter.

International revenue (excludes Lionsgate UK) recorded an increase of 382.1% to $108.0 million from $22.4 million in the second quarter of 2011, driven by global release of Hunger Games along with strong revenue from Cabin In The Woods, What To Expect When You're Expecting, Step Up Revolution and Cold Light Of Day.

Lions Gate UK’s revenue was up by 120.0% to $48.4 million from $22.0 million, driven by the company’s strong performance at the theatrical division by the releases made during the quarter.

Television category revenue came to $35.5 million compared with $28.2 million in the prior-year quarter, reflecting an increase of 25.9%, whereas Mandate Pictures revenue came in at $31.6 million, up substantially from $2.4 million in the prior-year quarter.

Television Production revenue decreased 28.9% year over year to $99.0 million, reflecting a 70.9% decline in Home entertainment category of television production to $15.9 million along with decrease of 28.0% in International revenue to $9.0 million, partly offset by 2.4% increased revenue from domestic series licensing to $73.4 million.

During the quarter, the company reported adjusted EBITDA of $109.7, which improved from a negative EBIDTA of $13.4 million in the year-ago quarter. The improvement in EBIDTA during the quarter was witnessed mainly due to strong theatrical box office performance of ‘The Possession’ along with healthy international results.

Lions Gate ended the quarter with cash and cash equivalents of $54.4 million with film obligations and production loans of $437.6 million and shareholders’ equity of $146.2 million. The company generated a free cash flow of $18.9 million during the quarter.

The company’s filmed entertainment backlogincreased to $1.2 billion, reflecting strong future revenues, which is encouraging.

Lions Gate is a film studio engaged in the production and distribution of motion pictures for theater and straight-to-video release and also television programming for cable and broadcast networks. The company has a strong track record of producing small and mid-budget specialty films. Lions Gate operates in the entertainment industry with other major studios, such as Fox Entertainment Group, Paramount Motion Pictures Group and Time Warner Inc. ( TWX - Analyst Report ) .

Currently, we have a long-term ‘Neutral’ recommendation on the stock. Moreover, Lions Gate holds a Zacks #3 Rank that translates into a short-term Hold rating for the next 1-3 months.