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Analyst: Redbox Yearly Share Earnings Hit by NCR Deal

23 Jul, 2012 By: Erik Gruenwedel

Coinstar is expected to lower 2012 share earnings estimates following the recent closing of its acquisition of NCR Corp.’s entertainment business when it reports second-quarter results July 26, an analyst said.

Coinstar, which owns and operates Redbox rental kiosks in addition to coin-counting machines, at the end of Q1 acknowledged it did not include costs associated with the $100 million purchase of Blockbuster Express kiosks, which were owned and operated under license agreement by NCR, in its fiscal-year revenue and earnings guidance.

The acquisition is expected to result in Coinstar adding $40 million to $45 million in capital expenditures for the year, while lowering fiscal year earnings 40 cents to 50 cents per share going forward, according to Michael Pachter, analyst with Wedbush Securities in Los Angeles.

The analyst contends the acquisition was a proactive move that put the kiosk vendor’s closet competitor [Express] out of business while allowing it to expand both its domestic and international footprints.

“Excluding the one-time dilution from the NCR acquisition, we think that Coinstar could earn close to $5.50 [per share] in 2012,” Pachter wrote in a July 23 note.

Regardless, Pachter said the NCR deal would have little impact on Q2 results, which he said should exceed guidelines. Indeed, a 20% price hike implemented in Q4, strong box office for Q2 disc releases, and ongoing attrition of physical rental at Netflix should contribute to a banner quarter for Redbox.

“We expect results to exceed our estimates,” the analyst wrote. “The NCR acquisition should have a minimal impact on Q2.”

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