2Q sales slip from $487.7 mil to $406 mil; co. cuts overall net loss

This article was updated at 9:34 p.m.

NEW YORK — With all eyes focused on its pending sale, the Lion snored rather than roared through its second fiscal quarter.

MGM on Thursday reported revenues down 17% for the three months ended June 30 compared to the same period a year ago, but it delivered a sharply lower net loss — which should ease investors’ nerves for at least another quarter of uncertainty.

Without last year’s homevid bonanza from “Die Another Day” (the Lion’s most successful home entertainment release ever), second-quarter sales slipped from $487.7 million to $406 million. Company nonetheless cut its overall net loss to $19.7 million, down from $133.6 million last year, when it recorded a $93 million loss on the sale of its stake in three Rainbow Media cable networks.

TV programming sales contributed revenue of $46 million, down from $50 million a year ago. However, the unit delivered higher operating earnings of $12.6 million, up from $3.1 million.

Based on its skeletal second-quarter earnings press release and conference call, the Lion is looking increasingly like a lame duck, said one fund manager.

Company refused to discuss the status of its negotiations with would-be buyers. But Time Warner may be near to snatching MGM with a stock-and-cash joint venture offer — a far simpler proposition than Sony’s bogged-down, private equity-backed bid.

MGM chairman-CEO Alex Yemenidjian insisted he’s “not a big believer in measuring performance on a quarter-by-quarter basis.” Instead, he spent a lot of time on the call touting the company’s small but growing international networks group, its core home entertainment sales and a resurgent TV production arm. Company also focused investor attention on the $33.6 million in net operating flow it generated during the quarter.

“Our ability to consistently generate cash flow afforded us the opportunity to reward our shareholders, yet again, with a tax-free, extraordinary dividend of $8 per share during the second quarter,” Yemenidjian reminded investors in a statement.

It’s also keeping volatility to the minimum, with only two films left to be released this year after a middle-of-the-road box office run from recent pics “Saved!,” “Walking Tall” and “Soul Plane.” Company said teen pic “Sleepover” would result in a small loss.

Not surprisingly, execs focused more on MGM’s core home entertainment biz than on its recent releases. Homevid remains the big sales driver for the Lion, with worldwide DVD unit shipments up 11% from last year to roughly 34 million. Chief operating officer and vice chair Chris McGurk noted home entertainment library sales were up 136% in markets where MGM now self-distributes, such as Germany and Australia.

Looking forward, the studio will release two more features in 2004: thriller “Wicker Park,” starring Josh Hartnett, in which MGM invested a mere $9 million, and “Beauty Shop,” which could get pushed back into early ’05.

As for the much-anticipated next Bond film, McGurk insisted the studio was still on track for a November 2005 release. “We’re deep in development process, we’ve got a script … and we’re interviewing directors,” he said, adding that the casting issues (such as who may replace Pierce Brosnan in the title role) will be addressed.

Yemenidjian devoted a significant chunk of the call to talking up MGM’s international cable nets, which now claim more than 24 million subscriber in 110 territories, growing “at single-digit rates.” At best, however, these nets generate just $14 million in affiliate fees, analysts estimate, plus sales from movies MGM sells to the joint ventures that operate the channels.

Yemenidjian said the company was looking to leverage its Latin American channels to possibly target the U.S. Hispanic market.

Company also touted its recent success with TV production, noting new commitments for its Showtime series “The L Word” and “Dead Like Me.” Lion is also developing series versions of “Legally Blonde” for syndication and “Barbershop” for Showtime.

MGM expects library sales of its pre-1998 titles to hit $450 million this year.

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