‘Panda’ lets down DreamWorks

DreamWorks Animation Studios reported a 45% drop in net income during the fourth quarter of 2008 as DVD revenue from “Kung Fu Panda” failed to match that of “Shrek the Third” a year earlier.

Results were below analysts’ estimates.

The Glendale studio reported that net income declined to $51.6 million, or 58 cents a share, from $94.1 million, or 98 cents, a year earlier. Revenue for the quarter ended Dec. 31 fell 31% to $199.8 million.

DVD sales from “Kung Fu Panda” generated $102 million in revenue during the quarter, compared with $179 million pulled in by “Shrek the Third” after its release in the fourth quarter of 2007.

“Kung Fu Panda,” which grossed more than $630 million in worldwide ticket sales, was released on DVD in November, in time for holiday shopping season.

Home video sales in general, which Hollywood has relied upon for years to bolster the movie business, have slowed considerably as the recession has cut into consumer spending.

“Despite the weakened economic environment, our productions continue to perform well at the box office and in home video,” DreamWorks Animation Chief Executive Jeffrey Katzenberg said in a conference call with analysts.

Still, Wall Street had been looking for stronger results. Analyst polled by Thomson Reuters projected that revenue in the quarter would fall 20% to $233 million, with earnings dropping 39% to 60 cents a share.

“I’m baffled,” said Michael Pachter, an analyst with Wedbush Morgan Securities, who anticipated higher DVD sales for “Kung Fu Panda.” “It creates shareholder volatility when there is a mismatch between expectations and actual results.”

However, Doug Creutz, an analyst with Cowen & Co., said the results were solid and not surprising. “The bottom line is that they had two very successful movies [last] year, which is the first time they’ve ever done that,” he said. DreamWorks also released “Madagascar: Escape 2 Africa” in November, which has generated more than $580 million in ticket sales.

Results were reported after markets closed. DreamWorks Animation shares rose 85 cents to close at $19.76 after dipping to a 52-week low on Monday. Shares fell $1.15 in after-hours trading.

DreamWorks executives also attributed the profit decline to higher expenses from investments in new business ventures, including various TV specials, a Broadway musical based on the Shrek franchise and the $75-million expansion of its Glendale headquarters.

DreamWorks Animation’s performance this year will hinge on “Monsters vs. Aliens,” its first 3-D film, which opens in theaters on March 27. The massive promotional campaign underway for the film has included the distribution of 125 million pairs of 3-D glasses so viewers could watch a 3-D ad of the movie during the Super Bowl telecast.

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richard.verrier@latimes.com