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DreamWorks Animation Q2 Earnings Fall Short of Estimates, SEC Investigation Revealed

DreamWorks Animation says it is cooperating with an ongoing SEC investigation regarding the $13.5 million film inventories write down it took on “Turbo” in February. Katzenberg and the other execs on the Tuesday afternoon conference call would not comment further on the matter.

Immediately after the announcement, shares were down 8.9%.

This news comes on the heels of the studio’s reported loss of 18 cents per share, a net loss of $15.4 million. Analysts had predicted a drop of two cents per share.

This marks the second consecutive impairment for the animation studio. Year over year, DreamWorks Animation revenue dropped 31% to $147.2 million in the first quarter of 2014, a net loss of $43 million. That’s primarily due to the soft box office performance of “Mr. Peabody & Sherman.” The quarter prior, revenue dropped 23%.

During the call, DreamWorks said that it has purchased distribution rights to all its feature films prior to 2013 from Paramount and going forward, those films will be handled by Fox.

Expectations for the studio’s second quarter began dropping in the month leading up to the company’s announcement.

“How to Train Your Dragon 2” has grossed $424 million to date globally, but is seen as having underperformed as it has only contributed $2.6 million in feature film revenue. The first film in the franchise grossed a total of $494.8 million worldwide.

DreamWorks Animation CEO Jeffrey Katzenberg said on the call that the movie business is “not secular but cyclical,” and noted that DreamWorks is competing against more movies then it had in the past.

He maintained that the studio will continue to put out two to three films per year, but noted that he and other execs are currently “working on a very different business model” for original films “on a very different scale altogether.” He would not elaborate further.

The studio’s upcoming releases, “Penguins of Madagascar” and “Home,” have both had their respective production budgets boosted to $135 million, Katzenberg also noted.

The feature film segment contributed revenue of $69.7 million and gross profit of $23.9 million to the second quarter.

The studio took out $100 million on revolver from its $400 million line of credit to fund television production. Execs on the call said that location-based entertainment, digital media, consumer products and its over-the-top family channel would be the primary key growth areas for the remainder of 2014.

The studio has been looking to diversify, acquiring AwesomenessTV and launching DreamWorksTV on YouTube. On Monday, the studio hired former Disney executive Mark Zoradi as COO. DreamWorks Animation also promoted Ann Daly to president and added vice chairman to CFO Lew Coleman’s duties.

[This post has been updated.]

 

 

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