AMC Entertainment Swings to Third-Quarter Loss, Beats Expectations

AMC Theater - H - 2016

The world's biggest theater chain pointed to a "weakness" in its Hollywood movie slate.

Cinema giant AMC Entertainment on Monday swung to a loss in the third quarter due to "weakness" in its summer box office, but still surpassed expectations.

The country's largest theater circuit, owned by China's Dalian Wanda Group, posted a loss of $42.7 million, or 33 cents a share, against a profit of $30.4 million or 31 cents in the same period of 2016. Analysts had predicted a loss of 36 cents during the latest quarter, representing a beat of 3 cents.

Stock in AMC Entertainment tumbled just over 4 percent, by 50 cents, to $11.70 in after-hours trading as investors reacted to revised guidance by the company for fiscal 2017, which pointed to a net loss in the $155 million-$175 million range.

During the latest quarter, overall revenues were $1.17 billion, up 51 percent from a year-earlier $780 million, after deals by AMC to acquire Carmike Cinemas, the U.K.-based Odeon & UCI Cinemas chain and the European cinema giant Nordic Cinema Group to become the world's largest exhibitor.

After those acquisitions across the Atlantic, AMC CEO and president Adam Aron told analysts that his company was considering an initial public offering of the newly acquired European theaters on the London Stock Exchange at some point between July 2018 and April 2019.

The company will still retain full majority control of the Odeon and Nordic chains, but could sell 25 percent to 33 percent of those assets to European investors to pay down debt or return value to shareholders from its current expansion program.

Aron also told analysts AMC was eyeing a foray into virtual reality exhibition and movie-related merchandise sales at its theaters, and was considering moving ahead on plans to create a premium VOD window for Hollywood movies on the expectation that the major studios could agree to terms with domestic exhibitors on shortening theatrical windows and allowing earlier home viewing of popular film titles.

“Either PVOD simply will not happen in the U.S. anytime soon... or, if it does happen, it will happen in a way that is agreed to by AMC and profitable for AMC, even when taking into account cannibalization from people watching movies outside of our theaters," Aron told analysts as he explained why his company is hedging its bets on a possible premium VOD window, and profits, from the major studios down the road.

While maintaining support for current talks with the major studios on their premium VOD plans, AMC execs during recent analyst calls and conference presentations have highlighted possible threats to the exhibition industry from day-and-date VOD releases and home entertainment during their traditional first window.

During the latest quarter, admissions revenue rose 52 percent to $754 million when factoring in recent mergers, and the average ticket price during the quarter was $9.48, down from a year-earlier $9.57. Food and beverage revenue rose 45.2 percent to $361 million, while food and beverage per patron was down 5 percent to $4.55.

The latest results also reflected poor summer box-office experienced by AMC and rival exhibitors. "We have been predicting weakness in the third-quarter industry box office, due to the quantity and subject matter of the films that were scheduled to be released. Not surprisingly, our foreshadow was accurate," Aron said in a statement regarding the company's latest results.

During the analyst call, however, a bullish Aron reiterated his prediction that the Hollywood box office going forward held out good news. "The box office is coming back, and with a roar," he said.

Four months of summer box office was not a trend, Aron argued. "We expect moviegoing at the year-end to be robust ... we could be close to another record year," he said.

The chain, which operates around 8,200 screens in about 660 AMC theaters across the U.S., has such upcoming titles on its screens as Justice League, due out Nov. 17, and Star Wars: The Last Jedi, set to bow Dec. 15.

Nov. 6, 2:45 p.m. Updated with comments by Aron made Monday during an analyst call.