Pixar Soars on 'Incredibles' DVD Sales

Pixar Animation Studios Inc. (PIXR) on Thursday reported higher-than-expected earnings on strong DVD sales for "The Incredibles" and said it had renewed talks reviving a lucrative distribution deal with the Walt Disney Co. (DIS).

Investors had been waiting to hear whether Pixar (search) had made any progress in choosing a new distribution partner for future films after its pact with Disney expires next summer.

Pixar Chief Executive Steve Jobs (search) said in a conference call with analysts that he had had "nice conversations" with incoming Disney Chief Executive Officer Robert Iger but that no deal had been struck. Talks between the two companies halted last year after Jobs feuded publicly with outgoing Disney CEO Michael Eisner (search).

The Emeryville, Calif.-based company reported first-quarter net income of 67 cents a diluted share, or $81.9 million, compared with 23 cents a diluted share, or $26.7 million, in the year-ago quarter.

Pixar posted revenue of $161.2 million, compared with $53.8 million in the first quarter of 2004.

Wall Street expected net income of 47 cents and revenue of $117.5 million, according to a survey of analysts polled by Reuters Estimates.

Pixar's share price climbed 5 percent to $48.20 in after-hours trade on Inet after closing at $46.27 on Nasdaq on Thursday.

Pixar's distribution agreement with Disney, which saw the releases of six blockbuster animated hits such as "Toy Story," "Monsters Inc" and "Finding Nemo," ends in June of 2006 with the release of a seventh film, "Cars."

Jobs said Pixar, which releases its first wholly-owned film in 2007, could wait until the end of the year to have a new distributor in place.

David Miller, an analyst with Sanders Morris Harris, said the prospect of cordial relations with Disney does not mean that Disney will agree to Pixar's demand for a flat distribution fee and full ownership of their films.

"I don't believe Disney will agree to that," Miller said.

Pixar Chief Financial Officer Simon Bax told analysts that the company expects to post earnings of 15 cents per diluted share in the second quarter, with its main revenue coming from continuing DVD sales of "The Incredibles" and library titles.

The consensus estimate from analysts is for 22 cents per diluted share, according to Reuters Research.

Miller was skeptical of Pixar's guidance saying they always give guidance that is lower than what they actually expect to report. "They always low-ball," Miller said.

The company had net income of 31.5 cents per diluted share in the year-ago second quarter.

The company will release no films in theaters this year and will rely instead on revenue from pay TV, library DVD releases and the release in September of a 10th anniversary DVD edition of "Toy Story."

Bax told analysts that international sales of "The Incredibles" were expected to be strong, and that the film was on track to become the company's second-best selling property, behind "Finding Nemo."

Lehman Bros. analyst Anthony DiClemente said sales of "The Incredibles" showed surprising strength and promise for Pixar.

"It's a validation of the computer animation business model that the unit economics of a successful animated film are very attractive," DiClemente said.

"You've got (Pixar) amassing an evergreen library ... building movie by movie this recurring cash flow stream from ongoing DVD sales."