Shares fall on weak bows
Who would have thought that raucous roller skaters and Bruce Willis could weigh so heavily on a company’s fortunes?
MGM shares have slumped 11% over the past two weeks, as Lion-watchers worry that disappointing movie bows on each of the past couple of weekends will push the studio deeper into the red in the first quarter than previously anticipated.
The situation demonstrates how the fortunes of less-diversified entertainment companies rise — or in this case fall — more readily and quickly on the performance of individual movie releases.
But a generally negative atmosphere has also engulfed vertically integrated media congloms.
Investors have been unable to see improvement in sluggish broadcast advertising, so even stocks such as AOL Time Warner — whose studio unit continues to crank out movie hits — have also been struggling.
AOL TW stock, in fact, is down 28% so far this year, while Fox is down more than 20% and Vivendi Universal 30%. Disney is bucking the trend, with its shares up 14%.
‘Rollerball’ on thin B.O. ice
MGM’s “Rollerball” bowed in third place over the Feb. 8 frame with $9 million, and the action remake about a violent roller-skating sport grossed only $15.6 million through the following holiday weekend.
Then, Willis starrer “Hart’s War” opened in seventh place during the Feb. 15 sesh, as the prisoner of war drama took in a scant $8.9 million over the long Presidents Day weekend.
Both pics were pricey to produce, though the Lion reduced its outlays by tens of millions of dollars through the sale of some foreign rights. Still, the flops are expected to hurt the corporate bottom line.
MGM had forecast a loss of about 20¢-22¢ a share for the January-March quarter, and “they could lose a few more pennies because of the movies,” Gerard Klauer Mattison analyst Jeffrey Logsdon said Thursday.
“It could be more than a couple of pennies, depending on how much the films continue to gross,” figured Sanders Morris Harris’ David Miller.
MGM execs were unavailable for comment.
In the fourth quarter, the Santa Monica-based studio reported three times higher profit than a year earlier at $39.1 million, fueled by a 29% rise in revenue to $375.5 million. Robust homevid and DVD income was credited in the absence of many theatrical releases.
But back in the second quarter, Lion took unspecified writedowns on its laffer “What’s the Worst That Could Happen?” and U co-production “Josie and the Pussycats” as MGM posted a $61.3 million loss.
Profit in nine of 12 quarters
That was an exception to a mostly profitable rule of late at MGM, as studio has reported a profit in nine of its past 12 quarters.
On Thursday, MGM shares fell 63¢, or 4%, to close at $17.16.
That’s only modestly below its 52-week trading average, but the slide continues shares’ downward trend of the past several weeks. The falloff began when Wall Streeters determined that talk of a possible sale or merger involving MGM was likely to remain mere talk for the time being.
In January, MGM officials acknowledged an ongoing search for “business combination opportunities.” That came on the heels of Sony brass’ acknowledging discussions with the Lion, which ultimately collapsed.
It’s believed reps of other media congloms, such as Disney and Viacom, also held talks with MGM execs in recent months.