It has been about a month since the last earnings report for Lions Gate Entertainment (LGF.A - Free Report) . Shares have lost about 8.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Lions Gate due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Lions Gate Q2 Results Hurt By Lower Television Revenues
Lions Gate Entertainment delivered second-quarter fiscal 2019 adjusted earnings of 22 cents per share comfortably beat the Zacks Consensus Estimate of 10 cents per share but decreased 24.1% from the year-ago quarter. However, the figure increased 22.2% sequentially.
Revenues declined 4.2% year over year to $901 million but comfortably surpassed the Zacks Consensus Estimate of $890 million. However, the figure increased 3.8% sequentially.
Notably, the stock lost 40.4% against the industry’s rally of 20.5% on a year-to-date basis.
Motion Pictures (42.1% of revenues) reported revenues of $379 million, down 1.7% year over year. The segment logged profit of $12.9 million, up 45% from the year-ago quarter primarily attributable to success of earlier released titles including A Simple Favor.
Television Production (16.9% of revenues) revenues were down 28% year over year to $152.1 million. Segment profits were $9.4 million compared with $18 million in the prior-year quarter, which included licensing of major Starz original series including Power and Ash vs Evil Dead.
The Media Networks segment (41.9% of total revenues), formed after the acquisition of Starz, reported revenues of $377.3 million, up 4.9% year over year driven by strong over-the-top (OTT) subscriber growth. Moreover, segment profit was $122.7 million, up 19%.
Starz revenues (99% of media revenues) increased 4.2% year over year to $373.7 million. The growth was due to increase in 1.3 million domestic subscribers sequentially, taking the total domestic subscribers count to 25.1 million. The increase in domestic subscribers was due to gains in both OTT, which is more than 3 million, and traditional MVPD (multichannel video programming distributor) subscribers.
Further, management noted that its premium programming like Power, American Gods and Outlander, and retention rate also contributed to Starz revenue growth.
On Nov 8, Lions Gate announced that Starz will be launched in UK later this month via Liberty Global’s cable platform, Virgin Media. This will allow the company to showcase Starz’s content to Liberty Global’s 4 million video subscribers.
Moreover, the company also recently partnered with Hulu, in which Disney has a majority stake, to distribute Starz original programming content. Notably, Lions Gate first launched Starz in six European countries through Amazon’s Prime. The company has renewed its partnership with Amazon to help it expand both in the United States and international markets.
Streaming services (1%) surged 227.3% year over year to $3.6 million.
Adjusted OIBDA surged 18.6% from the year-ago quarter to $128.8 million. Adjusted OIBDA margin expanded 280 basis points (bps) to 14.3%.
Operating income increased 28.6% from the year-ago quarter to $39.1 million. Operating margin expanded 110 bps on a year-over-year basis to 4.3%.
Balance Sheet & Cash Flow
As of Sep 30, cash and cash equivalents were $372.3 million compared with $315.6 million of Jun 30. Total film obligations and production loans were $468.3 million compared with $491.9 million sequentially.
Net cash flow from operations was $156.5 million in the reported quarter compared with $113.3 million in first-quarter fiscal 2019.
Free cash flow was $99.5 million compared with $113.6 million in last reported quarter.
Management expects three-year CAGR of adjusted OIBDA in the “mid-to-high single digits.” Leverage will likely be in the range of 3.5X to 4X.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -5.49% due to these changes.
Currently, Lions Gate has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.
Lions Gate has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.