Lionsgate Earnings Beat Estimates Amid Takeover Speculation

Mike Pont/FilmMagic
Lionsgate CEO Jon Feltheimer

The Hollywood studio, led by CEO Jon Feltheimer, released its latest results that included a one-time $165 million gain from lower U.S. income tax rates.

Lionsgate on Thursday reported a sharply higher third-quarter profit due to the impact of a steep tax cut and higher overall revenues amid renewed takeover speculation.

Lionsgate, led by CEO Jon Feltheimer, recorded net income of $191.1 million, compared to a year-earlier loss of $31 million due to one-time Starz merger costs. The studio also reported diluted earnings of 87 cents a share, compared to 19 cents a share loss in the third quarter of fiscal 2017.

That blew past a 25 cents per-share earnings forecast by analysts for the latest quarter. The EPS line included a one-time income tax benefit of $165 million after the U.S. income tax rate was recently lowered.

The third-quarter results were also released amid persistent rumors after Disney's proposed purchase of Fox that Lionsgate is being circled by Verizon, Amazon and other possible suitors.

Last year, toy giant Hasbro looked at buying Lionsgate, but the companies couldn't agree on a price. Lionsgate's Feltheimer during an afternoon analyst call on Thursday insisted his company was eyeing possible merger and acquisition opportunities, even as the priority was continuing to run and invest in a growing Hollywood studio.

"I like to think the original formula that Michael [Burns] and I created will be one that will keep working really well. Will there be opportunities going forward, based upon our balance sheet, based upon the robust business we have? I think there probably will be," Feltheimer told investors.

The exec insisted the current wave of industry consolidation amid growing digital disruption was something Lionsgate could not ignore. "Everyone is using the term 'prey or predator.' I think that's probably appropriate. But at the end of the day, we love our business," added Feltheimer.

Overall revenues at the studio rose 52 percent to $1.14 billion, against a year-earlier $752 million, after the studio acquired Starz. That beat an analysts forecast of $1.07 billion in overall revenues.

Media networks revenues grew 6 percent to $382.9 million, which includes the Starz networks. The rise was attributed to higher over-the-top digital revenue growth and digital media licensing deals in the world market. Segment profits rose 6 percent to $128.3 million.

Starz was the other big focus on the analyst call, and in particular producing a more compelling slate of original series to secure and retain new subscribers. The studio said it will increase investment in Starz programming and aims to double the number of original series for the premium cable channel by the end of fiscal 2020.

Feltheimer said Lionsgate would invest around $2 billion a year in new content overall, with a skew towards new programming for Starz and the studio's other media networks. And on the distribution side, the company pointed to Starz recently securing an exclusive content licensing deal for Canada via telecom giant Bell Media and is getting set to launch on Hulu in the next couple months.

Even as Starz went dark on Altice USA cable systems at the turn of the new year as part of a carriage dispute with no end in sight,  Lionsgate also pointed to recently securing a carriage renewal deal for the premium cable service on Amazon channels.

The motion picture segment at Lionsgate saw revenues rise 14 percent to $539.1 million, helped by stronger domestic box-office gains. Lionsgate has posted recent mid-budget hits like La La Land, the Julia Roberts drama Wonder and the John Wick movies. The segment profit was $54.3 million, just down from a year-earlier $56 million.

On the TV production side, segment revenues were $227.3 million, just down from a year-earlier $231 million. Lionsgate's TV arm, led by chairman Kevin Beggs, has scripted series hits including Orange Is the New Black, Nashville, Greenleaf and Dear White People. The segment profit was $22.7 million, against a year-earlier $27.5 million.

Feb. 8, 6 p.m. Updated with comments made by top Lionsgate execs during analyst call.