Lionsgate Posts Sharply Higher Fourth-Quarter Earnings, Beats Expectations

THR 100 List 2017 -  Jon Feltheimer - Getty- H 2017
Mike Pont/FilmMagic

The studio, led by CEO Jon Feltheimer, blew past Wall Street forecasts after acquiring Starz to raise its profile in the TV space.

Lionsgate beat profit estimates, on sharply higher quarterly earnings, with its fourth-quarter financial results on Thursday.

The studio, led by CEO Jon Feltheimer, reported net income of $91.3 million, compared to a year-earlier profit of $61.6 million. The latest net income line includes a tax benefit of $259 million following recent changes to the U.S. corporate tax rate on deferred tax liabilities and an internal capital restructuring related to debt financing transactions.

The diluted profit per share was 41 cents, against 28 cents a share for the three months to March 31.

That blew past a forecast from Wall Street analysts of a one cent per share loss for the latest quarter. Overall fourth-quarter revenue at $1.04 billion, which was $30 million ahead of Wall Street estimates, was down from a year-earlier $1.25 billion on lower theatrical movie business.

Media network revenue, which mostly comprises Starz, came to $365.7 million, compared to a year-earlier $370.8 million, as the newly created division posted over-the-top digital revenue growth.

Lionsgate's Starz division renewed its carriage deal with Altice USA midway through the latest financial quarter. In a key move into Europe, Starz series and movies will become available in one place in the U.K. and Germany as the Starzplay streaming service launches on local Amazon Prime Video channels.

Starz will also launch on YouTube TV in the U.S. market in June and on Hulu in October. "This is another major step in rolling out Starz as a global consumer brand," Feltheimer told analysts during a conference call after the release of his latest financial results.

Analysts during the call focused on a decline in linear TV subscribers at Starz during the fourth quarter, down 500,000 to 23.5 million in all. That linear pay TV reduction was offset by rises in over-the-top digital subscribers.

Starz CEO Chris Albrecht pointed to a "tough couple quarters in our MVPD space, but we're poised for growth in the Starz subs for 2019." He added that Starz was impacted by AT&T's shutdown of U-verse and a repackaging the Time Warner system following its Charter Communications deal.

"We're looking to grow our Starz subs in fiscal 2019" to get back up to 24 million customers, the exec added as the pay TV service eyes digital and international subscriber growth to offset the linear TV customer decline. "Some unique situations, disruptions in our MVPD partnerships, will subside, and we'll see that stabilize, which gives us room to improve our overall numbers with meaningful growth of the OTT business," Albrecht predicted.

In its latest results, Lionsgate's Motion Picture Group saw revenue fall 35 percent to $424.9 million, against a year-earlier $654 million, on a smaller theatrical slate.

Lionsgate also had a tough year-over-year comparison on the movie side as box-office releases last year included La La Land, the Keanu Reeves-starrer John Wick: Chapter Two and Power Rangers, the big-screen adaptation of the classic kids' TV show about a group of morphin' superheroes.

Television production revenues were $252.7 million, up four percent from a year earlier when they were $242.6 million, after the acquisition of Starz grew Lionsgate's profile in the TV space. The latest financial results, revealed after the market close on Thursday, follow industry speculation that Lionsgate may be interested in being a seller or a buyer as it mulls taking a stake in 3 Arts Entertainment, the Los Angeles-based management firm.

Talk of mergers and acquisition did not come up during the analyst call after top executives at Lionsgate earlier telegraphed a possible sale amid continuing industrial consolidation and being more aggressive in pursuing creative talent to exploit ownership rights, especially after acquiring Starz to get deeper into television.

May 24, 6 p.m. Updated with comments by top Lionsgate execs during an analyst call.