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DreamWorks Animation Takes $57 Million Writedown on ‘Mr. Peabody’

DreamWorks Animation has taken a $57 million impairment charge against earnings due to the disappointing box office results for “Mr. Peabody and Sherman.”

The company reported on Tuesday a first-quarter loss of $42.9 million, or 51 cents a share, on revenues of $147.2 million. DreamWorks Animation posted earnings of $5.6 million, or 7 cents a share, on revenues of $134.6 million during the 2013 first quarter.

“The box office shortfall of ‘Mr. Peabody and Sherman’ is evidence of the current challenges we face within our feature film segment, and restoring the strength in our core business is my number one priority today,” said CEO Jeffrey Katzenberg.

“Our next film is ‘How to Train Your Dragon 2’ on June 13, 2014, and I am confident that its performance will put us back on track to once again reach the levels of box office success that we’ve achieved historically,” he added.

DreamWorks announced the charge and earnings after the market closed. The loss was not a major surprise to analysts, and the stock slid 37 cents to $26 in after-hours trading.

The company’s feature-film segment lost $25.4 million on revenue of $110.1 million during the quarter.

“Mr. Peabody” opened on March 7 through Fox and has grossed $261 million worldwide. Its production cost was $145 million.

Katzenberg told analysts during a conference call after the report that DreamWorks movies need to be “must-see” entertainment, adding that the company needs to be more selective about release dates. He also told analysts that DreamWorks Animation is shifting its strategic thinking to put more emphasis on marketability due to the increasingly competitive marketplace.

“Playability is just not enough today,” Katzenberg added.

The CEO blamed the poor results on three of the last four films on “inconsistent execution.” He also said that DreamWorks will continue to focus on sequels, with at least one per year through 2017.

“The Penguins of Madagascar” opens next March, and “Kung Fu Panda 3” is set for release in December 2015. “How to Train Your Dragon 3” will open in June, 2016, and “The Croods 2” is set for June, 2017.

Chief operating officer Ann Daily told analysts that the average production cost of upcoming DreamWorks Animation titles will be $125 million or less.

DreamWorks Animation scored with “The Croods” last year, drawing $587 million worldwide, but fell short with “Turbo,” taking a $13.5 million charge against earnings. It also took an $87 million writedown last year for “Rise of the Guardians.”

The company signed a five-year distribution deal with Fox in 2012.

DreamWorks said “Mr. Peabody” contributed feature film revenue of $3 million to the first quarter; “Turbo” contributed $22.3 million, primarily from domestic pay TV; “The Croods” contributed $41.7 million, primarily from domestic pay TV and home entertainment; and library titles contributed $37.9 million.

The TV operations posted a profit of $5.8 million on revenues of $17.9 million and DWA’s consumer products generated a $6 million profit from $12.1 million in revenue.

The earnings report came a day after Katzenberg told the Milken Institute conference that DreamWorks Animation is hedging its bets and diversifying its interests.

“Movies are not a growth business,” Katzenberg said Monday, explaining why he aggressively lobbied for DreamWorks’ new interests, primarily shortform, digital and television content.

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