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MGM beats Street
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October 24, 2000: 2:13 p.m. ET
Film studio banks on library, DVD for blowout 3Q profit
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NEW YORK (CNNfn) - Metro-Goldwyn-Mayer Inc. reported third-quarter profits Tuesday that significantly exceeded Wall Street expectations, driven by strong performance of films in current theatrical release and those in its vast library.
The Santa Monica, Calif.-based company, home to the James Bond franchise, said its net income rose to $27.1 million, or 13 cents a share, from $10.3 million, or 7 cents, a year earlier.
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 MGM BEATS THE STREET
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3Q EPS 13 cts vs. 7 cts year-ago
Forecast was for 1 cent/shr
3Q Revs $315M vs. $299M
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Revenues rose 5 percent to $315.4 million from $299.3 million. Cash flow, or earnings before interest, taxes, depreciation and amortization (EBITDA), was $43.8 million, up from $40.2 million.
Two weeks ago, MGM (MGM: Research, Estimates), which is rebounding from years of red ink, pre-announced that its earnings would exceed analysts' projections, which at that time were about a penny per share.
Third-quarter results benefited from the theatrical release of "Autumn in New York," a romance starring Richard Gere, which is expected to be profitable despite a relatively small box office return of about $37 million. Also boosting results were continued strong sales for home viewing, in DVD disc format and videotape, of films "The World Is Not Enough," "The Thomas Crown Affair," and "Stigmata."
"To report $44 million of EBITDA and $27 million of net income, with only one minor theatrical release during the quarter, says a lot about the new MGM," Chairman and CEO Alex Yemenidjian told analysts on a conference call.
"It says that our library revenues and EBITDA are growing...and it says that our overhead and distribution expenses are not growing," he added. "Consequently, our profit margins are rising to a level where it isn't necessarily a must to have hugely successful picture in order to have a successful quarter."
The rosy earnings continue a steady stream of quarterly profits dating back to last year's third quarter. A new management team, led by Yemenidjian and President Chris McGurk, took over the reins of MGM, one of Hollywood's oldest studios, in the spring of 1999.
Since then, the studio, which is controlled by billionaire investor Kirk Kerkorian, has retaken control of the sale of home videos that are generated from its library of over 4,000 titles.
MGM said its film-based revenue increases more than offset the decline in television revenues, which slumped to $35 million from $86 million due to fewer shows airing in the third quarter than a year earlier.
Aggressive release schedule set for 2001
The company plans an aggressive release schedule in 2001, including 20 feature films, among them "Hannibal," the sequel to the 1991 hit, "Silence of the Lambs."
On the home front, MGM's Home Entertainment unit is expected to release a total of 222 video and 128 DVD titles this year, with up to 350 DVD titles planned for next year.
The company is banking on the continued sales growth of DVD players and consumers' hunger for films they adore. MGM's library is the world's largest, with titles including "The Graduate," "Raging Bull," "Dances with Wolves," the James Bond movies and the musicals of the 1940s and 1950s. Indeed, MGM said it has shipped more than 12 million units of James Bond videotapes and DVDs this year.
 During the conference call, the company predicted that its DVD revenues would exceed 50 percent of its home entertainment revenues, which include primarily DVD and videotape sales. MGM did not break out that figure in its quarterly results, but a spokeswoman said DVD sales so far this year are about 35 percent of the company's home entertainment revenues.
MGM chief financial officer Daniel Taylor said during the conference call that DVD revenues in the quarter rose to $49 million from $11 million a year ago, a rise of more than 300 percent. International sales represented more than 40 percent of DVD revenue, he added.
Analysts were impressed with the company's ability to perform with limited films in current release, and were encouraged by the company's plans to grow its DVD business in 2001.
But Salomon Smith Barney analyst Jill Krutick noted that a wider roster of feature films, even if they are critically acclaimed, may not guarantee box-office success.
"On the film side, they are subject to the vagaries of consumers appetites, so that's a tough one to predict," she said.
The company noted that due to an accounting change, its first quarter 2001 results would include a one-time charge of between $375 million and $400 million, to reflect the reduced carrying costs of its film and television inventory. Accordingly, the company expects the accounting changes to cut $120 million from its cash flow during 2001.
Shares of MGM rose 81 cents to $20.75 Tuesday afternoon trade on the New York Stock exchange.
-- from staff and wire reports. 
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MGM
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