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Lions Gate (LGF.A) Up 21% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Lions Gate Entertainment (LGF.A - Free Report) . Shares have added about 21% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Lions Gate due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Lionsgate’s Q1 Earnings, Revenues Beat Estimates

Lionsgate reported first-quarter fiscal 2021 adjusted earnings of 39 cents per share that beat the Zacks Consensus Estimate by 95%. The company had reported loss of 2 cents in the year-ago quarter.

However, revenues decreased 15.6% year over year to $813.7 million but beat the consensus mark by 11.2%.

Segment Details

Motion Picture (34.5% of revenues) revenues decreased 29.4% year over year to $280.7 million, primarily attributed to theatre closings related to the coronavirus pandemic.

However, Lionsgate’s top line benefited from increased home-entertainment and library revenues. Markedly, library revenues grew to a record $219 million driven by strong demand for content and revenues from the recent syndication of Mad Men.

Moreover, the Motion Picture segment raked in a profit of $101.1 million compared with $7.6 million in the year-ago quarter.

Television Production (24.1% of revenues) revenues declined 30.1% year over year to $195.7 million, primarily due to coronavirus-led production delays. Segment profit was $34.9 million, up 39.6% year over year driven by the recent syndication of Mad Men.

The Media Networks segment (45.1% of revenues), formed after the acquisition of Starz, reported revenues of $367.3 million, down 1.4% year over year. Segment profit increased 18.5% to $71.8 million, driven by lower losses at STARZPLAY International.

Starz Networks revenues declined 4.7% year over year to $345.8 million. STARZPLAY International revenues in the quarter surged to $10 million from $3.1 million in the year-ago quarter. Streaming-services revenues soared 79.7% year over year to $11.5 million.

At the end of the quarter, Starz Networks’ domestic OTT subscribers grew to 7.4 million.  Global OTT subscribers (from Starz, STARZPLAY Arabia and PANTAYA) reached 11.4 million.

Total Global subscribers (linear and OTT) was 25 million at the end of the fiscal first quarter.

Operating Details

Lionsgate’s adjusted OIBDA surged 158.1% year over year to $173.7 million in the reported quarter.

Direct operating expenses, as a percentage of revenues, declined 700 basis points (bps) on a year-over-year basis to 52%.

Moreover, distribution and marketing expenses, as a percentage of revenues, fell 860 bps on a year-over-year basis to 17.4%.

However, general & administrative expenses, as a percentage of revenues, increased 270 bps year over year to 13.4%.

Operating income was $89.4 million in the reported quarter against operating loss of $3.2 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Jun 30, 2020, Lionsgate had cash and cash equivalents of $376.1 million compared with $318.2 million as of Mar 31, 2020.

Moreover, as of Jun 30, 2020, total film obligations and production loans amounted to $388.7 million compared with $353.7 million as of Mar 31, 2020.

Net cash flow from operating activities was $81.4 million at the end of the fiscal first quarter compared with $180.3 million at the end of the previous quarter and $37.3 million in the year-ago quarter.

Adjusted free cash flow was $77 million compared with free cash flow of $175 million in the previous quarter and $24 million in the year-ago quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month. The consensus estimate has shifted -26.47% due to these changes.

VGM Scores

At this time, Lions Gate has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Lions Gate has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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