MGM posted a better-than-expected second-quarter revenue surge of 45% Tuesday, prompting investors and analysts to take a benign view of the company’s broadened loss, which hit $133.6 million.
The loss, up from $121.8 million a year ago, included a $93.1 million writedown on the Lion’s recently sold investment in three cable webs.
Quarterly revenue reached $487.7 million with film revenue up 44% to $427.5 million on homevid income from James Bond title “Die Another Day.” Modestly expanded TV operations saw a 60% revenue spurt to $50.1 million.
In discussing quarterly financial results, MGM chairman-CEO Alex Yemenidjian said he’ll recommend the distribution of some of the company’s cash reserves to shareholders if the studio is unsuccessful in its quest for Vivendi Universal Entertainment. A dividend appears unlikely, but some other mechanism for “returning wealth to our shareholders” could be created, Yemenidjian said.
Analysts and investors seemed satisfied.
“Their homevideo performance was very impressive,” Merrill Lynch analyst Jessica Reif Cohen said. “And the promise of returning some wealth to shareholders was very smart.”
Revenue figures “just crushed our estimate,” Sanders Morris Harris’ David Miller said.
Investors appeared happy as well, with MGM shares climbing up 34¢, or 2.8%, to close at $12.60 on the day.
Quarterly theatrical releases had little effect on the financials, but key upcoming film releases include a pair of titles that follow on the success of last year’s comedy “Barbershop.” “Barbershop 2” is planned for a November release, with spinoff “Beauty Shop,” starring Queen Latifah, skedded to follow a year after that.
Stake sales end debt
The studio, now based in Century City after a move in May, effectively wiped out its debt with proceeds from the sale of its stakes in three Rainbow Media webs back to Cablevision for $500 million.
“With a net debt-free balance sheet and strong free cash flow generation, MGM is now in the strongest financial position it has ever been,” Yemenidjian said. “This gives us great leverage to pursue transactions that create wealth for our shareholders.”
Topper stressed Lion wouldn’t overpay for VUE. But he acknowledged an “ongoing dialogue” with VUE’s French parent, Vivendi Universal, about acquiring its film, TV and theme park operations.
Yemenidjian said he will recommend some sort of cash disbursement to MGM shareholders if the studio is unsuccessful in the VUE auction. He declined to specify the means of doing so, but noted one possibility would be to make a tender offer to buy back shares at a premium.
In response to an analyst’s question during a conference call, Yemenidjian said the company would have sufficient resources both to take such shareholder action and pursue an alternative acquisition. A priority for any MGM acquisition is identifying a target that would broaden the studio’s content distribution capabilities, he said.
And for now, VUE remains in its crosshairs.
Bid boost foreseen
Industryites expect MGM to increase its latest VUE bid of $11.5 billion, which Viv U has labeled as too low. A source close to the Lion said no decision has been made on when to raise the bid or by how much.
Many observers believe the Lion must acquire more operational mass if it’s ever to fully appreciate the value of its massive film library. A VUE acquisition also could provide MGM majority owner Kirk Kerkorian a clearer exit route from his Lion investment.
But MGM vice chairman Chris McGurk emphasized that current operations are already working well.
“We believe that these results, combined with the recent successful release of ‘Legally Blonde 2: Red, White & Blonde,’ are all clear indications that we have the proper strategies in place and are executing them well.”
A third “Legally Blonde” movie is possible, and a TV spinoff on ABC is still planned, McGurk said.
Marketing costs on “Legally Blonde 2” and upcoming Denzel Washington starrer “Out of Time” will hit in the third quarter and produce negative free cash flow and a loss in the period, chief financial officer Dan Taylor said. Lion expects positive cash flow and net income in the fourth quarter but a modest loss on the year.
In the latest quarter, costs related to MGM’s broadening of control over international homevid distribution added $7 million to studio’s loss. Recent move of most operations to MGM Tower in Century City did not substantially add to overhead costs in the period, execs said.