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MGM Reports Estimated Net Loss for Q1 2002

27 Feb, 2002 By: Nicole Sperling


MGM said Tuesday its estimated net loss for first-quarter 2002 has been revised downward to 35 cents to 37 cents a share, compared with a previous forecast of 20 cents to 22 cents issued Feb 6.

Ticket sales for Hart's War dropped 50 percent last weekend to $4.5 million after the film debuted in seventh place the previous weekend. The two-week gross of $15 million marks the second flop of the month for the company after Rollerball generated only $17.5 million in three weeks.

MGM also revised its cash-flow estimate for 2002. Cash flow for the year is now forecast at break-even, whereas previous expectations called for a 15% increase from last year's $55.9 million.

"We equate this to a giant hiccup," said David Miller, a media analyst at Sanders Morris Harris. "This is eerily reminiscent of second-quarter last year when they preannounced earnings on June 22 and essentially threw in the towel when two films — Josie and the Pussycats and What's the Worst That Could Happen? — didn't live up to box office expectations. Now, nine months later, two films in the theatrical channel underperform."

MGM did reiterate that it still expects to report a net profit in the fourth quarter, but the company also widened its projected full-year net loss to 46 cents-48 cents a share from its previous guidance of 24 cents-26 cents.

"It wasn't surprising that they revised their guidance," said Michael Gallant, media analyst at CIBC World Markets. "I think they smartly recognized that Rollerball wasn't going to be that successful, and they sold off all of their international rights. They also deserve credit for not marketing the movie that heavily.

"I think the real disappointment was Hart's War, where they kept the majority of the territories and marketed the movie heavily. I think they were legitimately hurt by the Olympics, but I do think it is a decent movie so it has a shot of doing well in the ancillary markets."

MGM still holds high expectations for its two remaining 2002 tentpole films, John Woo's Windtalkers and the 20th installment of the James Bond franchise, as well as three other smaller films, including A Guy Thing, starring Jason Lee and Julia Stiles, Barbershop, with Ice Cube, and The Crocodile Hunter, starring Steve Irwin.

"We remain confident in the balance of our 2002 film slate, and our other core businesses continue to exceed our expectations," said Dan Taylor, senior executive vp and chief financial officer.

However, not all analysts are convinced of the playability of the remaining films on the 2002 slate.

"Certainly I think there are issues with the other movies in the pipeline," said one analyst who declined to be identified. "Windtalkers had an enormous budget, and I'm skeptical about its performance. The last Bond film did great business, but it looked a little tired. With Brosnan hurting himself, it's not a slam-dunk that it will succeed."

With MGM as the smallest of the seven Hollywood studios and most dependent on the success or failure of each film, analysts remain skeptical about its future.

"What this highlights is how difficult it is to invest in a pure-play film company who is largely dependent on the fickle and hard-to-predict consumer market," said Spencer Wang, media analyst at ABN AMRO. " Windtalkers and Bond have a larger financial exposure, but Bond has a certain level of demand built in and should do fairly well. Windtalkers has strong creative talent with both director and star, and we are optimistic."

But not all analysts are betting the bank on the film release schedule. According to Miller, the company's massive film library and its ability to exploit it in DVD sales represent the bigger opportunity.

"Keep in mind that 25 percent of households have DVD players and spend a lot on new DVDs," Miller said. "With a 4,100-title library and only 580 exploited in DVD, there is still room to run. That is their bread and butter and will continue to play well for them."

MGM will release its first-quarter earnings in late April.

Shares of the company closed down 0.62 on Tuesday at 16.96. The stock has lost nearly 13% of its value since Rollerball debuted Feb. 8.

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