Animation Studio Is Nipped by ‘Rabbit’

DreamWorks Animation SKG Inc. reported fourth-quarter earnings Thursday that were cursed by a were-rabbit.

Profit at the Glendale-based studio fell 67% on disappointing box-office receipts for the Oscar-winning “Wallace and Gromit: The Curse of the Were-Rabbit.”

The earnings included a one-time tax benefit as well as a $25-million charge to write down the value of “Wallace and Gromit.” Despite winning an Academy Award for best animated feature, the stop-motion tale of a veg-ravaging rabbit monster failed to resonate with U.S. audiences.

And the studio does not expect any significant revenue in the first half of the year until the May release of its next feature, “Over the Hedge.”

“It’s pretty ugly all the way around,” said David W. Miller, managing director of Sanders Morris Harris. “I’m not really sure there is anything positive in this release that long-term investors can hang their hat on.”

Nonetheless, Thursday’s results beat Wall Street expectations, and DreamWorks shares rose 24 cents to $27.10 in after-hours trading after the earnings announcement. They gained 23 cents to $26.86 in regular trading. Investors are expecting big results from DreamWorks’ 2007 slate, which features “Shrek 3” and Jerry Seinfeld’s “Bee Movie.”

Net income for the fourth quarter dropped to $63.2 million, or 61 cents a share, from $192 million, or $1.99, a year earlier. Revenue fell 65% to $172.9 million. Last year’s earnings were boosted by home video sales of “Shrek 2” and box-office receipts from “Shark Tale.”

“Wallace and Gromit,” made by British studio Aardman Animations, grossed just $56 million domestically, and DreamWorks cannot recognize revenue from the film until its distribution costs are paid.

“It’s hard to have a film more critically acclaimed,” Chief Executive Jeffrey Katzenberg said, “but it did not perform in the domestic marketplace.”

Most of the quarter’s revenue -- $152.3 million -- came from home video sales of “Madagascar,” DreamWorks’ last computer-animated feature.

For the year, net income fell to $104.6 million from $333 million in 2004. Revenue declined 57% to $462.3 million.

The disappointment of “Wallace and Gromit” makes it unlikely that DreamWorks will make another stop-motion film with Aardman. However, it is releasing Aardman’s computer-animated “Flushed Away” this fall.

Katzenberg defended the studio’s long-term record with computer-animated films, saying that “Shark Tale” and “Madagascar” were solid hits at the box office and ranked among the top-selling DVDs last year.

A studio spokesman said DreamWorks was cooperating with an inquiry by the Securities and Exchange Commission into stock trading around the time the company surprised Wall Street last May with earnings that fell short of expectations. In addition, DreamWorks is still smarting from its miscalculation of demand for “Shrek 2” DVDs. The company was left with millions of unsold discs and less revenue than expected.