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Lions Gate's Earnings Fall; Beat Estimates

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Lions Gate Entertainment Corp.’s second-quarter fiscal 2014 earnings came in at 8 cents a share that dropped sharply from 53 cents in the prior-year quarter that benefited from blockbuster release of The Hunger Games and the timing of television deliveries. These were offset by decline in theatrical marketing costs and lower interest expense.

The quarterly earnings, which include stock-based compensation but exclude loss on extinguishment of debt and valuation allowance, fared far better than the Zacks Consensus Estimate of loss of 7 cents a share. Including one-time items, the company delivered a breakeven bottom-line.

Total revenue of this Zacks Rank #3 (Hold) stock tumbled 29.5% during the quarter to $498.7 million, and also fell short of the Zacks Consensus Estimate of $534 million.

However, management remains optimistic about future performance due to the worldwide launch of the next installments of the Hunger Games franchise. The Hunger Games: Catching Fire, The Hunger Games: Mockingjay I and The Hunger Games: Mockingjay II, are slated to be released globally on Nov 22, 2013, Nov 21, 2014 and Nov 20, 2015, respectively. Lions Gate also remains on track to capitalize on increasing digitalization and diversification of television business.

During the quarter, the company reported adjusted EBITDA of $56.5 million, declining significantly from $109.7 million in the year-ago quarter. Adjusted EBITDA margin contracted 420 basis points to 11.3%.

Motion Pictures’ revenue of $434.4 million fell 28.6% year over year, reflecting soft performances across Home Entertainment (down 22% to $204.4 million), Theatrical (down 34.5% to $76.1 million), Television (down 2.5% to $34.6 million), Lionsgate U.K. (down 44% to $27.1 million) and International operations (down 17.9% to $88.7 million).

Television Production revenue dropped 35.1% to $64.3 million attributable to fall in revenue from domestic television (down 43.7%) and home entertainment (65.4%), partly offset by higher international (up 81.1%) and other revenue (up 71.4%).

Other Details

Lions Gate ended the quarter with cash and cash equivalents of $67.2 million with film obligations and production loans of $444.2 million and shareholders’ equity of $426.1 million. The company in the trailing four quarters has lowered its debt burden by $277.8 million. During the quarter, contractual cash-based interest expense dipped to $11.9 million from $18.9 million in the year-ago quarter.

The company generated free cash flow of $84.9 million during the quarter, up considerably from $18.9 million in the year-ago period.

The company’s filmed entertainment backlog was $1.1 billion at the end of the quarter, 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 as well as television programming for cable and broadcast networks. The company has a strong track record of producing small and mid-budget specialty films. Lions Gate competes with other major studios, such as Twenty-First Century Fox, Inc. (FOXA - Free Report) , The Walt Disney Company (DIS - Free Report) and Time Warner Inc. (TWX - Free Report) .

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