Cinemark Third-Quarter Earnings Fall Amid "Weaker" Appeal of Summer Releases

Mark Zoradi -Getty- H 2016
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The theater operator, led by CEO Mark Zoradi, fell shy of profit expectations, while unveiling plans for its first virtual reality theater in Dallas.

Movie theater operator Cinemark Holdings on Friday reported third-quarter earnings that fell shy of analyst expectations amid an underwhelming Hollywood movie slate.

Cinemark CEO Mark Zoradi in a statement pointed to "weaker consumer appeal of this summer’s film content," but added he remained "enthusiastic about the long-term prospects of our industry and film lineup for the remainder of 2017 and beyond.”

The U.S.-based cinema chain also Friday unveiled plans to open its first virtual reality theater in its flagship Dallas venue, in partnership with The Void. Zoradi during an analyst call said the VR installation, to be located prominently in the theater lobby, will entice users either "on impulse" or in combination with a movie viewing experience.

Location-based VR startup The Void already has VR theaters open in New York City and Toronto, and Cinemark's first proposed location is expected to start operation in the first half of 2018. "It's going to be a great opportunity for us to see what we can do with a premier location, with a premier virtual reality provider, and we will market it aggressively to consumers," Zoradi said.

Cinemark posted earnings of 33 cents per share, compared to 56 cents per share in earnings in the year-ago period. Analysts had forecast third-quarter earnings of 35 cents per share.

Revenue for the quarter fell to $710.7 million from a year-earlier $768.5 million due to lower admissions and concession revenue. That beat a consensus forecast of $703 million in overall revenue.

Cinemark saw admissions revenue fall to $425 million during the latest quarter, against a year-earlier $472.8 million, while concessions revenue was $247 million, down from $261.4 million in the same period of 2016.

Despite the weak summer quarter for Hollywood movies, Wedbush Securities analyst Michael Pachter in a pre-earnings report said Cinemark was "poised for growth" due to an expanding theater network, upgrades like recliner seating and a "reversal of weak box-office trends."

Zoradi during the morning call with analysts also addressed a news report this week about Disney's less favorable exhibition terms for Star Wars: The Last Jedi next month by insisting Cinemark would not be materially impacted. He said the cinema operator has multi-year deals with major Hollywood studios, Disney included, that specify film rental rates.

"There's no change that we anticipate on that. So it's not going to deviate from our existing, multi-year deal with Disney," Zoradi added. The bullish Cinemark head also reiterated his prediction that domestic box-office revenue for 2017 will end the year "fairly in line" with the box office performance of 2016 and 2015.

"While this summer was impacted by a stint of films that did not fully connect with audiences, as well as a lower volume of releases than the year before, we do not believe there has been a fundamental shift in consumer behavior over a few short months," Zoradi said.

Cinemark runs 529 theaters with 5,957 screens in 41 U.S. states, Brazil, Argentina and 13 other Latin American markets.

Nov. 3 9:45 a.m. Updated with comments by CEO Mark Zoradi made during an analyst call to discuss the third-quarter results, and details on the circuit's first foray into virtual reality exhibition.