Soft Sales of ‘Shrek 2’ Hurt Studio

DreamWorks Animation SKG’s stock took a monster hit Tuesday, tumbling 20% as the company’s first-quarter earnings disappointed Wall Street because DVD sales of “Shrek 2” fell well short of projections.

DreamWorks’ shares, which started the day trading at $38.50, plunged $2 on the New York Stock Exchange as word drifted out that the Glendale computer-animation studio’s results would disappoint investors when announced after the final bell. Once they were released, shares tumbled an additional $5.80 in after-hours trading to $30.70.

“I’ve been sent to the shed and given a good lashing,” Chief Executive Jeffrey Katzenberg said in a telephone interview. “ ‘Shrek 2’ is still a blockbuster, and it is unfortunate that we have stubbed our toe in a way that has created the reaction that it has. But when you look underneath that, the fundamentals of the company couldn’t be stronger.”

Tuesday’s hammering marks one of the few blips in Wall Street’s love affair with computer-generated animation, an industry led by Emeryville, Calif.-based Pixar Animation Studios and DreamWorks. But the field is becoming crowded, with most major Hollywood studios planning projects as moviegoers show they prefer digital animation to traditional hand-drawn versions.

Tuesday’s drubbing left DreamWorks’ price at its lowest level since its initial public offering of $28 a share in October. The stock reached a high of $42.60 in December.

DreamWorks’ stock fell even though the company swung to a profit of $46 million, or 44 cents a share, in the first quarter, contrasted with a net loss of $25 million, or 33 cents, in the same period last year.

Revenue also rose, to $167 million from $41 million.

But analysts expected a much fatter quarterly profit of 58 cents a share, according to Thomson First Call, and revenue of more than $175 million.

But DreamWorks miscalculated DVD sales of the box-office hit “Shrek 2.”

Based on brisk sales after it was released late last year, DreamWorks expected “Shrek 2” to have sold 40 million units by the end of the first quarter.

Instead, the number came in 5 million short of that mark. Eventually, the company expects to have sold 38 million to 40 million units by year-end, ranking it among the bestselling family videos ever.

The slower sales of “Shrek 2” and the other titles prompted DreamWorks to revise downward its full-year earnings projections to $1 to $1.25 a share, well shy of its $1.88 target.

The studio said its first-quarter profit came mainly through $142 million in revenue from the international theatrical and DVD sales of “Shark Tale.”

DreamWorks is hoping to get back into the good graces of investors with its upcoming release, “Madagascar,” opening May 27.

“If ‘Madagascar’ works, a good portion of this will be forgiven,” said Dennis McAlpine of McAlpine Associates.

The company also has one more release scheduled this year with “Wallace & Gromit: The Curse of the Were-Rabbit” in October.

The movie is being made by Aardman Animations, the British studio behind the DreamWorks hit “Chicken Run.”