DreamWorks Hopes ‘Madagascar’ Helps Tame Wall Street Complaints

In the computer-generated film “Madagascar,” opening today from DreamWorks Animation SKG, a lion, hippopotamus, giraffe and zebra discover “it’s a jungle out there” when they leave the comforts of a New York zoo for the wilds of the island off Africa.

Like the characters in its film, DreamWorks has its own treacherous undergrowth to maneuver through: Wall Street.

Just seven months after the company went public, DreamWorks has been chastened by the pummeling it took this month from investors, who hammered the company’s stock when earnings fell well short of expectations.

DreamWorks blamed a drop-off in DVD sales of “Shrek 2” after a fast start in the fall. But investors and analysts showed little sympathy, criticizing the company and Chief Executive Jeffrey Katzenberg for failing to cushion the blow by preparing investors for the earnings shortfall as a more seasoned public company might have done.

“It looks like Katzenberg doesn’t know the ropes on how Wall Street zeroes in on guidance,” said Joel Kaplan, an investor who owns 22,000 shares. “The street took it as a violation of the expectation level.”

Asked Richard Greenfield, managing director of Fulcrum Global Partners: “Why weren’t they more conservative given that they are a new public company and credibility is so important?”

Now, DreamWorks hopes to make amends and reignite investor interest with “Madagascar,” which aims to follow in the footsteps of DreamWorks hits “Shrek,” “Shrek 2” and “Shark Tale.” Those three films combined grossed about $1.8 billion at the worldwide box office, and minted money in DVD sales.

Regaining Wall Street’s trust is especially important because DreamWorks is weighing a secondary stock offering to allow some of its key shareholders, notably billionaire Paul Allen, to divest a portion of their holdings. When that offering happens hinges on how “Madagascar” performs, and the stock market reaction.

DreamWorks executives declined to comment, citing a quiet period they must abide by under Securities and Exchange Commission rules. In the past, executives at the Glendale studio have said they are keenly aware of the microscope they are under as a high-profile, new public company.

Reviews of “Madagascar” generally call it better than “Shark Tale” but no “Shrek.”

Despite soft reviews, “Shark Tale” grossed $366 million worldwide and performed strong on DVD as the public continued to show it was enamored of the computer animation genre led by Pixar Animation Studios, DreamWorks and 20th Century Fox.

Featuring the voices of actors Chris Rock, Jada Pinkett Smith, Ben Stiller and David Schwimmer, “Madagascar” follows the adventures of the four animals that escape from the Central Park Zoo. Using the latest technology, the film is designed to blend today’s computer animation with the look of classic cartoons similar to the ones created by legends Chuck Jones and Tex Avery.

Paul Dergarabedian, president of box-office tracker Exhibitor Relations, said “Madagascar” would benefit from being the only family film out for Memorial Day, the biggest movie weekend in two of the last three years. He predicts “Madagascar,” which opens in more than 3,700 theaters in the U.S., should gross well above the $47 million “Shark Tale” reaped in its October debut, although nowhere near “Shrek 2’s” $108-million opening last summer.

“If you have a family and little kids, this is it,” he said.

Should “Madagascar” click with moviegoers, DreamWorks hopes to keep the momentum going with fall’s “Wallace & Gromit: Curse of the Were-Rabbit.” Further down the line is comedian Jerry Seinfeld’s animated comedy “Bee Movie,” whose prospects DreamWorks is talking up to investors.

Still, Wall Street remains wary. DreamWorks stock, initially hammered by more than 20%, remains 12% lower than what it was trading at when the studio released its first-quarter earnings May 10. On Thursday, DreamWorks shares rose 24 cents to $33.70, well off of the high of $42.60 hit in December.

DreamWorks disappointed investors even though it reversed a year-earlier loss of $25 million by posting a profit of $46 million in the quarter. But the 44 cents a share it reported was far short of the 58 cents Wall Street was counting on, expectations analysts said DreamWorks should have tempered.

That stumble was the first major glitch for DreamWorks since its successful public offering in October. The company, founded in 1994 by director Steven Spielberg, music mogul David Geffen and former Walt Disney Co. studio chief Katzenberg, raised more than $812 million then -- well above expectations.

Despite disappointing investors, Fulcrum’s Greenfield said the overall outlook remained good for the company and its fundamentals were solid.

“It was a credibility issue they created themselves,” Greenfield said. “While it’s disappointing that they made a mistake, hopefully they have learned from that.”