Cinemark Posts Lower Earnings, Record Revenue for Third Quarter

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Cinemark CEO Mark Zoradi

"A record high film rental expense for the third quarter weighed on profits," says one analyst.

Cinema giant Cinemark Holdings on Tuesday reported lower third-quarter earnings that missed Wall Street estimates, but record quarterly revenue, driven by a strong U.S. and international business.

"A record high film rental expense for the third quarter weighed on profits as did an unusually high other theatre operating expense," explained MKM Partners analyst Eric Handler.

Cinemark said third-quarter attendance climbed 5 percent to 73.4 million patrons, its average ticket price rose 1.1 percent to hit $6.20 for the quarter and concession revenue per patron was up 4.5 percent to $3.95. Key box office performers of the third quarter included The Lion KingSpider-Man: Far From Home and It Chapter Two.

"Our third quarter’s record worldwide revenues were fueled by strength in both our domestic and international operations,” said Cinemark CEO Mark Zoradi. "In addition to the film content that resonated extremely well with our global audiences, we benefited from the continued focus and execution of our guest-oriented strategic priorities. We continue to believe the investments we are making to differentiate and enrich the overall entertainment experience we provide our guests will further position Cinemark for long-term success."

During an analyst call, Zoradi discussed the higher operating costs during the latest quarter, which he attributed to higher film rental fees from a concentration of popular blockbusters like The Lion King and Spider-Man: Far From Home, but also due to investing in digital marketing and the cost of relaunching the Cinemark Movie Fan loyalty program.

He added that Hollywood studios each negotiate their own film rental rates with major cinema chains, and he anticipated no significant changes in what studios charge to rent their blockbusters. "There's not a big increase on the horizon, and you'll see it fluctuate up and down slightly, depending on the concentration of those big mega-blockbuster pictures," he told analysts.

Zoradi also reported his theater subscription service Movie Club has reached the 850,000-member milestone. He added 29 million movie tickets had to date been sold via Movie Club, which is priced at $8.99 a month and $9.99 a month in select markets. And Movie Club delivered around 15 percent of the circuit's third-quarter box office.

"It's made it an affordable way to go to the movie with family and friends," he said of Movie Club. Zoradi also discussed the potential impact of new streaming platforms on theatrical moviegoing.

He argued theatrical attendance "has held relatively stable" as Netflix, Amazon and other digital platforms launched during the last decade. Home film and TV viewing habits have been disrupted, Zoradi conceded, but he reiterated frequent film streamers are also frequent multiplex-goers.

He rejected that cinema chains will see reduced fortunes as new streaming services from Disney, WarnerMedia and NBCUniversal launch and challenge theatrical distributors. "Theatrical moviegoing remains a social and truly immersive experience that cannot be replicated in the home. People need to and get out of the home," Zoradi argued.

Cinemark posted quarterly earnings of $31.4 million, or 27 cents per share, compared with $50.2 million in the year-ago period, or 43 cents a share. The latest result came in below Wall Street estimates. Adjusted earnings before interest, taxes, depreciation and amortization, another profitability metric, increased slightly to $169.8 million, but also came in below analysts' expectations.

Cinemark's third-quarterly revenue increased 9 percent to $821.8 million, exceeding analysts' forecasts. Admissions revenue rose 6.3 percent, with concession revenue growing 9.6 percent.

Nov. 5, 6:30 a.m.: Updated with comments by Cinemark CEO Mark Zoradi made during an analyst call.