DreamWorks Animation profit increases

Library titles help Q1 revenue rise by 56%

Strong performance from its library titles helped DreamWorks Animation increase revenue by 56% in the first quarter.

Jeffrey Katzenberg-led toon studio saw earnings grow 25% to $15.4 million on $93.7 million in revenue during a quarter marked primarily by anticipation for the release of “Shrek 3” on May 18.

Continuing his recent habit of avoiding any hints of hype with investors, Katzenberg acknowleged DreamWorks’ uneven record since it went public in late 2004, but said the company is on track to execute its business plan of two CGI releases per year starting with “Shrek 3.”

“We have had some notable successes, but haven’t been as consistent as we would have liked,” he told analysts in a conference call. “But we believe our film slate over the next two to three years gives us the best chance since we started to achieve that level of success.”

First-quarter perf was driven by a solid homevideo showing for last fall’s “Over the Hedge,” which has shipped 12.6 million units worldwide.

Even though 2005’s “Madagascar” was significantly more successful, having sold 17.5 million units by the first quarter of last year, the two titles contributed approximately the same amount of revenue. “Hedge” brought in $33.1 million last quarter, while “Madagascar” made $30.7 million a year ago.

That’s apparently because DreamWorks was conservative with its reserves for “Madagascar” following its overestimation of “Shrek 2” DVD sales in 2005. Studio was more confident in its reserve estimates for “Hedge” this year, as it hasn’t had any similar problems since “Shrek 2.”

DreamWorks also was helped by its increasingly robust catalog. “Shark Tale” (2004) made $18.1 million in revenue, mostly from domestic TV, while “Shrek 2” brought in $17.5 million, driven by international TV.

“Wallace & Gromit” (2005) made $9.4 million, mostly from homevideo and overseas pay TV, while homevideo helped “Madagascar” to contribute $6.4 million.

Fall’s box office disappointment “Flushed Away,” which grossed $176 million worldwide, hasn’t yet recouped the marketing and distribution costs spent by Paramount. As a result, it isn’t generating any revenue for DreamWorks Animation.

That’s not expected to significantly change, meaning company’s 2007 revenue should result largely from “Shrek 3,” assuming it’s a monster hit along the lines of the previous two installments. However, Katzenberg admitted that the box office is somewhat uncertain given its release two weeks after “Spider-Man 3” and a week before “Pirates of the Caribbean: At World’s End.”

“Clearly the competitive environment is not ideal (for ‘Shrek 3’),” he said. “We’re facing some very tough competition, and there is no way to predict how that will affect performance.”

Shares in DreamWorks Animation closed up 2% at $29.94 before earnings were announced.

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