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Lions Gate (LGF.A) Up 14.2% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Lions Gate Entertainment (LGF.A). Shares have added about 14.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Lions Gate due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Lionsgate Q2 Earnings Beat Estimates, Revenues Up Y/Y

Lionsgate reported second-quarter fiscal 2020 adjusted earnings of 22 cents per share, beating the Zacks Consensus Estimate by 10% but unchanged on a year-over-year basis.

Revenues increased 9.2% year over year to $983.5 million and beat the consensus mark by 13.5%.

Segment Details

Motion Pictures (41.3% of revenues) revenues increased 7.1% year over year to $406 million on solid contributions from theatrical releases, including Scary Stories to Tell in the Dark, Angel Has Fallen and Rambo: Last Blood.

However, the Motion Pictures segment logged profit of $51 million compared with $12.9 million in the year-ago quarter.

Television Production (27.9 of revenues) revenues surged 80.1% year over year at $274 million. Segment profit totaled $12.6 million, up 34% year over year.

The Media Networks segment (38% of revenues), formed after the acquisition of Starz, reported revenues of $374 million, down 0.8% year over year. Segment profit declined 14.8% to $104.6 million due to the ongoing investments in STARZPLAY.

Starz Networks revenues decreased 2.9% year over year to $362 million. STARZPLAY International revenues in the quarter were $4 million. Streaming services revenues surged 100% year over year to $8 million.

At the end of the quarter, Starz had 27 million total global subscribers, up 1.8 million year over year.

Total domestic subscribers were 24.7 million. Starz domestic OTT subscribers grew 1.2 million sequentially to 5.6 million.

STARZPLAY International subscribers rose 200K sequentially in the reported quarter.

Operating Details

Adjusted OIBDA increased 12.6% year over year to $145 million in the reported quarter.

Direct operating expenses, as a percentage of revenues, shrank 60 basis points (bps) on a year-over-year basis to 50.8%.

Moreover, distribution and marketing expenses, as a percentage of revenues, expanded 140 bps on a year-over-year basis to 26.6%.

However, general & administrative expenses, as a percentage of revenues, contracted 200 bps on a year-over-year basis to 10.8%.

Operating income was $58 million in the reported quarter, up 48.7% year over year.

Balance Sheet & Cash Flow

As of Sep 30, 2019, cash and cash equivalents were $232.6 million compared with $196 million as of Jun 30, 2019.

Moreover, as of Sep 30, total film obligations and production loans amounted to $480.2 million compared with $614.9 million as of Jun 30.

Net cash flow from operating activities was $181.2 million at the end of the reported quarter, much higher than $37.3 million in the previous quarter.

Adjusted free cash flow was $61.1 million compared with the free cash flow of $24 million in the previous quarter.

Guidance

For fiscal 2020, Lionsgate still expects (excluding the impact of an upcoming carriage renewal) adjusted OIBDA of $650-$700 million, prior to investments related to STARZPLAY International (approaching $150 million).

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -21.91% due to these changes.

VGM Scores

At this time, Lions Gate has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Lions Gate has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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