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IMAX to Trim Workforce - Will Cost Savings Boost Growth?

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In a bid to drive its bottom line and increase efficiencies, Mississauga, Canada-based entertainment technology company IMAX Corporation (IMAX - Free Report) announced that it intends to trim its workforce by approximately 14%. Through this cost cutting measure, the company expects to lay off 100 employees (full time) across the globe, including China.

The move is expected to generate cost savings to the tune of $20 million on an annual basis. Also, the synergies are anticipated to be realized line from the third quarter of this year. However, IMAX will be incurring certain costs as well pertaining to this measure.

In fact, the company expects to incur approximately $15 million this year through pre-tax restructuring and impairment charges, of which $11 million are projected to be incurred in the current quarter itself. Following its efforts to check expenses, IMAX intends to unveil a detailed guidance pertaining to costs in late July during the second-quarter earnings conference call.

Multiple Headwinds Restricting the Stock

IMAX's stock has been severely affected by the extremely disappointing Memorial Day weekend turnout this year. According to comScore estimates, Memorial Day weekend domestic box office revenue plummeted to its lowest level of $176 million in 18 years.

In fact, this Zacks Rank #4 (Sell) stock has had a disappointing run at the box office over the past few months. Soft box office revenues hurt the company’s top line in the previous quarters. As the struggle continues, the scenario as far as second-quarter 2017 results are concerned seems to be dull for the company.

In view of the above headwinds, it is of little surprise that IMAX has underperformed the Zacks categorized Movie/TV Production/Distribution industry over the last six months. While the industry has gained 6.2%, the stock lost 24.5%.

Consequently, it is of little surprise that IMAX is aiming to drive its bottom line through cost reduction measures.

New Buyback Announced

With the IMAX stock struggling, the company’s board of directors cleared a shareholder friendly measure aimed at boosting investor confidence in the stock. To this end, it announced a new share repurchase program worth up to $200 million.

The program is anticipated to be completed by Jun 30, 2020 and will replace another $200 million program, which commenced in 2014. Through the existing program, expected to complete shortly, the company is aiming to buy back excess shares worth 6.4 million.

In fact, share repurchases benefit the company’s earnings per share, book value as well as shareholder equity as shares outstanding reduce.

Stocks to Consider

As IMAX performance has been disappointing, investors interested in the broader Consumer Discretionary space may consider some better-ranked stocks like Gray Television (GTN - Free Report) , Marriott International, Inc. (MAR - Free Report) and The Marcus Corporation (MCS - Free Report) . All these three stocks carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Gray Television has an earnings growth expectation of 6.5% over the next three to five years.

Marriott International has an impressive track record with respect to earnings per share, having outshined the Zacks Consensus Estimate in each of the last four quarters with an average of 5.21%. The company’s expected earnings growth rate for three to five years is 8.8%.

The Marcus Corporation has an earnings growth expectation of 15% over the next three to five years.

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