GLENDALE, Calif. – DreamWorks Animation SKG Inc. (DWA) on Monday warned of a loss in the second quarter, cut its full-year outlook and said federal regulators are investigating trading of its stock and its first-quarter results, sending shares tumbling more than 13 percent to a new low.
Additionally, DreamWorks, the creator of animated hits "Shrek (search)" and "Shark Tale (search)," said its principal shareholders postponed a planned $500 million offering of common stock, but did not indicate when they would reconsider the sale.
The company blamed the weakened earnings forecast on waning demand for home videos, citing a review of current sales and inventory levels that has prompted it to increase reserves set aside for returned products.
"What appears to be the case is that over the past several months, retail inventory for titles in catalog is lower than what we have traditionally experienced, both domestically and internationally," Chief Financial Officer Kris Leslie told analysts on a conference call, "and this is contributing to a higher level of both actual and expected returns."
DreamWorks is now expecting a loss of 7 cents to 9 cents per share in the second quarter, compared with an earlier view to break even during the period. Annual profit estimates were lowered to 80 cents to 90 cents per share from a past range of $1 to $1.25 per share.
"But while it remains unclear if this is a permanent issue, we have decided that from a financial reporting and forecasting perspective, it is prudent to reduce our ultimates for our 2004 releases based on the trends we are observing in the market at this time," Leslie said.
On average, analysts surveyed by Thomson Financial are looking for quarterly income of 9 cents per share and full-year profit of $1.39 per share.
The lowered outlook is yet another blow for DreamWorks' stock since early May, when the company posted a first-quarter profit well below Wall Street targets because of lackluster demand for the DVD of blockbuster hit "Shrek 2." A series of shareholder lawsuits alleging DreamWorks misrepresented potential DVD sales — coupled with a mediocre opening of "Madagascar" — pulled down shares some 34 percent to a low of $24.75 in June.
DreamWorks shares lost $3.60, or 13.4 percent, to $23.21 on the New York Stock Exchange (search), and dropped as low as $22.88 earlier in the day. The stock, which jumped as much as 52 percent after its trading debut last October, is now about 17 percent below its initial public offering price of $28.
DreamWorks also said the Securities and Exchange Commission (search) launched an informal probe into trading of its stock and the release of first-quarter results on May 10.
However, the company said in a statement that it was informed by the SEC that the investigation "should not be construed as an indication that any violations of law have occurred." DreamWorks said it is fully cooperating with the inquiry.