Cineplex box office revenue up but earnings fall short
Cinema chain looks to reduce dependence on Hollywood with focus on VIP services, Tim Hortons screens
Cineplex Inc. turned in mixed financial results in the fourth quarter, with the national theatre chain's revenue up significantly but earnings falling short of estimates because of higher expenses.
The quarter ended a year of growth for Cineplex, which bought most of the Empire theatre chain to expand into Atlantic Canada and acquired indoor sign operator EK3 Technologies.
"During 2013, we executed two significant strategic acquisitions and implemented a number of key initiatives in our existing and emerging businesses," Cineplex president and CEO Ellis Jacob said in a statement.
"These actions have resulted in meaningful new opportunities to drive growth in 2014 and beyond."
Among the initiatives for Cineplex: more VIP theatres that include amenities such as alcoholic beverages; Bollywood movies from India; and a digital signage collaboration with Tim Hortons.
"The in-restaurant television channel will show Tim Hortons content in a creative, informative and entertaining way in more than 2,200 existing restaurants in Canada," Jacobs told analysts in a conference call.
"Cineplex Media will sell advertising for the network, which provides our media sales force with yet another national out-of-home advertising option for clients."
Box office revenue up but expenses also rising
Still, rising expenses and other factors combined to produce a fourth-quarter profit for Cineplex that was down from the comparable period of 2012 and below the estimates of analysts as compiled by Thomson Reuters.
Cineplex earned $20.2 million for the quarter, or 32 cents per diluted share, down from $32.7 million, or 52 cents per diluted share, a year ago.
The average analyst estimate had been for a profit of 48 cents per share.
The company's expenses for film, concessions, depreciation and amortization, interest and other costs were higher. Cineplex's adjusted earnings were also reduced by a higher payout under its long-term incentive program, in response to the company's higher stock price.
On the other hand, revenue for the last three months of 2013 rose 8.2 per cent from a year before to $323.2 million.
Box office revenue totalled $177.6 million, or $9.42 per patron, up 2.6 per cent from a year earlier, while sales of snacks and other concessions totalled $93.3 million, or $4.94 per patron, up 6.2 per cent.
Revenue from other sources such as media, a small but growing part of Cineplex's business, totalled $52.2 million, up 25 per cent.
Diversifying away from Hollywood
The company's stock gained about 38 per cent last year, ending 2013 at $44.06. Its shares closed Monday at $41.50 but fell about three per cent in early trading after the financial results were released.
This year was impacted by certain movies that basically did a lot of money in the U.S. but did not perform the same way in Canada.- Ellis Jacob, Cineplex CEO
Jacob told analysts that stormy weather in December did have an impact on attendance and that acquisitions added one-time costs, but he stressed that a bigger factor was a relatively weak film lineup.
"This year was impacted by certain movies that basically did a lot of money in the U.S. but did not perform the same way in Canada," Jacob said.
Best Man Holiday, a Tyler Perry Christmas movie, and Saving Mr. Banks were among those that didn't fare well in Canada, especially compared with the successful James Bond movie Skyfall in 2012.
Similarly, he said this year's Oscar-nominated movies American Hustle and Twelve Years a Slave didn't perform as well as Argo, Life of Pi and Silver Linings Playbook a year earlier.
"Our whole focus, moving forward, is to become less dependent on Hollywood product, which is why we look at diversifying away into the digital signage business, alternative programming … to offset the weaker slate [of Hollywood films]," Jacob said.
Another new source of revenue involves Scotiabank, which has naming rights for some of Cineplex's theatres, higher-priced menu items and a stand-alone frozen yogurt location.
Cineplex announced last week that Scotiabank would be the presenting sponsor of its Cineplex VIP Cinemas, which feature specially designed auditoriums for adults, licensed lounges and other amenities for a higher price.
Some of Cineplex's locations have also been branded as Scotiabank Theatres, including three additions announced last week for Saskatoon, Halifax and St. John's.