DreamWorks Animation Posts Loss After Recording Charges

DreamWorks Animation SKG on Thursday posted a $656,000 third-quarter loss stemming in part from disappointing U.S. ticket sales for the feature film “Wallace & Gromit: The Curse of the Were-Rabbit.”

The Glendale computer-animation studio said the net loss amounted to 1 cent a share. A year earlier, the company earned $20 million, or 26 cents a share.

Revenue fell to $87.1 million, down from $241.3 million in 2004 when it was riding the success of the blockbuster “Shrek 2.”

The results reflected weaker-than-expected box-office results for “Wallace & Gromit,” prompting the company to take a $3.9-million charge.

Although the stop-action, Claymation movie created by Aardman Animations of Britain was well reviewed and is performing well internationally, its U.S. box-office take of $53-million fell short of DreamWorks’ forecasts. The film has generated $160 million in worldwide ticket sales.

Also contributing to the loss was a one-time, $8-million tax charge, and litigation expenses stemming from a rash of shareholder lawsuits alleging the company failed to disclose problems in a timely manner. The company has denied wrongdoing.

Revenue further declined because of lower-than-expected sales of the “Shrek 2” DVD. DreamWorks and other studios have struggled to get an accurate reading on DVD sales as retailers move more quickly to clear out older titles.

Nonetheless, in a conference call with analysts DreamWorks executives said the third-quarter results wouldn’t change their earnings forecast for the year of 80 to 90 cents a share, although they said the actual number would be at the lower end of that range.

“We were a bit disappointed that ‘Wallace & Gromit’ didn’t do better in the domestic marketplace,” DreamWorks Chief Executive Jeffrey Katzenberg said in an interview.

But Katzenberg stressed the continued success of DreamWorks’ “Madagascar.” The film has grossed more than $525 million worldwide and has the potential to be the “next great franchise,” the CEO told analysts.

Katzenberg also touted the company’s 2006 releases “Flushed Away” and “Over the Hedge.”

Although the modest “Wallace & Gromit” write-off was mostly unexpected, analysts said there were few other surprises.

“They’re doing what they need to do to rebuild shareholder confidence,” said Michael Savner of Banc of America Securities.

“If you exclude the tax charge, the results were a hair better than expected,” added analyst Lowell Singer of SG Cowan, citing strong international results of “Madagascar.”

Shares of DreamWorks closed up 14 cents to $26.53. The results were released after the stock market closed.

The studio’s share price is down 37% from a high of $41.98 in December. Investors have punished the company for failing to meet it DVD sales targets.

DreamWorks overestimated DVD sales of “Shrek 2” even though it was a hit in home video. Analysts have blamed changing consumer buying habits in which DVD sales now taper off much faster than they used to, prompting retailers to replace them with fresher titles more quickly.

The Securities and Exchange Commission has been informally looking into stock trading around the time DreamWorks announced disappointing DVD numbers. DreamWorks has said it is cooperating with the agency.

Katzenberg said the company has been working more closely with retailers to better track DVD sales.

“We’re all over it,” Katzenberg said. “We’re leaving no stone unturned.”