DreamWorks’ profit, revenue beat forecasts

DreamWorks Animation SKG Inc. beat Wall Street’s first-quarter profit and revenue expectations Tuesday due to stronger-than-expected DVD sales for “Over the Hedge” and other library titles.

DreamWorks executives said results also benefited from television royalties from “Shark Tale” and “Shrek 2” that were recognized earlier this year than expected.

The company reported a 25% increase in net income, with earnings of $15.4 million, or 15 cents a share, compared with $12.3 million, or 12 cents, a year earlier. Revenue rose 56% to $93.7 million.

Analysts on average expected the company to post net income of 9 cents a share and revenue of $70.6 million, according to Reuters Estimates.

In addition to sales of an estimated 12.6 million DVDs of “Over the Hedge,” “Shark Tale” and “Shrek 2” contributed about $35.6 million in revenue, mainly from TV sales.

The company’s 2005 film “Wallace & Gromit: The Curse of the Were-Rabbit” contributed about $9.4 million in DVD and international pay-TV sales during the quarter.

The studio’s latest release, “Flushed Away,” has reached $176 million in worldwide box-office revenue and contributed $1.2 million in merchandising and licensing revenue to the quarter.

DreamWorks Chief Executive Jeffrey Katzenberg described the quarterly results as “solid” and said the upcoming film slate would give the company its best chance yet to overcome more than two years of spotty results and “rookie errors.”

“If we knew then what we know today we could have done this better,” Katzenberg said. “On the other side of that, the lessons we have learned have served us very, very well. The best times are ahead for us.”

The company’s share price has run up more than 10% in the last year as investors anticipate the release of the third film in the blockbuster “Shrek” franchise this month.

Katzenberg said the competitive landscape for the film’s May 18 release “is not ideal” because it comes between sequels for the “Spider-Man” and “Pirates of the Caribbean” franchises. It is the only PG-13 rated family comedy among the three big releases this month, he added.

“I am confident there is enough capacity in the market for each film to be successful,” Katzenberg said.

Prudential Equity Group analyst Katherine Styponias said in a note to clients that “Shrek the Third” should gross $60 million to $75 million on its opening weekend and would remain the catalyst for DreamWorks shares for the next few weeks.

Katzenberg also touted the slated Nov. 2 release “Bee Movie,” written by comedian Jerry Seinfeld, as “an opportunity to appeal to a broader fan base” that is “more sophisticated and adult.”

He reiterated his belief that the company could benefit from newly emerging 3-D movie production technology, which could add about $10 million to $15 million to film costs.

He said earlier this year that DreamWorks would begin producing and releasing all of its films in 3-D starting in 2009.

DreamWorks also announced it had repurchased about 1.2 million shares for $35 million during the first quarter.

DreamWorks shares rose 61 cents, or 2.1%, to $29.89.