Animation studio swings to profit

DreamWorks Animation’s third-quarter earnings beat Wall Street expectations Tuesday, but analysts remained skeptical about how well the studio’s animated release, “Flushed Away,” would fare when it debuts this weekend. It’s up against Walt Disney Co.’s family film, “The Santa Clause 3: The Escape Clause,” starring Tim Allen.

DreamWorks Chief Executive Jeffrey Katzenberg said it was hard nowadays to find a weekend that isn’t jam-packed with family fare. “There is no such thing as going out on a date where there is no competition,” he said.

The studio will reassess whether to continue its original five-picture deal with “Flushed Away” co-creator Aardman Animations after the opening of the movie, about an uptown London rat that is flushed into the sewage system. Although Aardman’s 2000 feature with DreamWorks, “Chicken Run,” was a hit, its October 2005 release, “Wallace & Gromit: The Curse of the Were-Rabbit,” was a costly disappointment at the box office despite critical acclaim and an Academy Award for best animated feature.

For the third quarter, the studio reported net income of $10.5 million, compared with a net loss of $700,000 in the same period last year. Most of the quarter’s revenue came from home video sales of “Madagascar,” which has sold about 20.4 million units. DreamWorks shares rose 85 cents to $26.45. The report was announced after the close of trading.

Wall Street is optimistic about DreamWorks’ outlook. Next summer, the studio releases “Shrek the Third,” the sequel to the 2004 hit “Shrek 2,” which grossed more than $920 million at the box office worldwide. Next fall, the studio has Jerry Seinfeld’s animated comedy, “Bee Movie,” which also looks promising.

The recent announcement of a secondary offering of DreamWorks shares, allowing billionaire Paul Allen, the company’s largest shareholder, to cash out most of his stake, contributed to analysts’ optimism.

“After languishing for the past year and a half, we believe that DreamWorks shares are poised to outperform based on the stronger slate and the removal of the secondary overhang,” wrote Merrill Lynch analyst Jessica Reif Cohen in a recent report.

The studio said Tuesday that it had decided to turn “Puss in Boots,” based on Antonio Banderas’ swashbuckling fencing cat in “Shrek 2,” into a feature film instead of a home video release.

Katzenberg noted that a soft home video market as well as the popularity of the character persuaded the studio to release it theatrically after the fourth installment of “Shrek” in 2010.

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lorenza.munoz@latimes.com