BUSINESS

Corus expects to miss full-year profits as boys lose interest in BeyBlades

07/11/2013 05:26 EDT | Updated 09/10/2013 05:12 EDT
TORONTO - While spinning Beyblade toys were once the rage with kids, their fading popularity is becoming a pain in the side of Corus Entertainment Inc. (TSX:CJR.B) as the company warned investors on Thursday that it would miss its profit guidance for the financial year.

The TV, radio and animation company said a 26 per cent drop in sales for its toy products, combined with a decline in radio advertising revenues, has put pressure on earnings.

"Given the weaker than anticipated radio results coupled with the declines in our merchandising and distribution businesses, it is now apparent that we will miss the lower end of our segment profit target," chief executive John Cassaday told analysts on a conference call.

Corus had initially forecast a profit of $293 million to $303 million for 2013.

He noted the company still expects "solid growth" from its main television operations during the fourth quarter, and guidance on free cash flow remains unchanged.

The outlook came as the company missed analyst expectations for its third-quarter results, despite profits more than doubling on the sale of its non-controlling interest in Food Network Canada for $55.4 million.

Net income attributable to shareholders was $89.9 million or $1.07 per diluted share, an increase from $43.2 million or 51 cents in the same fiscal 2012 period.

Excluding the gain on the Food Network, the company earned $34.5 million or 41 cents per share, missing analyst expectations of 52 cents per share, according to a survey by Thomson Reuters.

Revenue in the three months ended May 31 was $200.1 million, down from $204.1 million.

Corus shares closed the session down 4.5 per cent, or $1.12, to $23.55 at the Toronto Stock Exchange on Thursday.

Cassaday pointed to weakness in Ontario radio station ad sales as one reason that the division's results were weaker, while Vancouver and Calgary "performed very well."

Overall, revenue from radio fell to $47.1 million from $49.3 million.

But it was the lack of interest in the Beyblade franchise — which Cassaday called "expected" last quarter — that hit the company's results the hardest.

Beyblades are a series of spinning tops that spawned a line of toys and TV shows, and once added millions of dollars to Corus' pocket each quarter through production and licensing. A toy franchise called Bakugan has found a similar success through Corus' animation division Nelvana.

The company doesn't breakout how much the toys and programs contribute to its overall earnings, but kids franchises can prove to be a highly lucrative, but extremely volatile industry.

"When we hit the ball out of the park, which we've done four years kind of in a row now with two boys action hits, Bakugan and Beyblade, it sure feels good," said Doug Murphy, president of Corus Television.

"But when you have to reset and come off that as we're doing right now, it stings a little bit."

The company hopes to counteract the downturn with four new properties in development, two which will be marketed towards preschoolers and two for boys in development at Nelvana.

Later this summer, Corus will launch a line of toys for the series "Mike the Knight" in North America, after a rollout in the United Kingdom earlier this year.

In its television business, the company reported that revenue declined to just under $153 million from $154.7 million a year earlier.

Executives said they are optimistic that the recent slide is starting to subside, at least for its kids channels.

"Kids advertising on YTV and Teletoon (is) pacing ahead of last year, a positive indication that the kids ad market is finally starting to recover," Cassaday said.

Earlier this year, the company dipped its toe into Internet programming in a partnership with YouTube. It launched a monthly subscription streaming channel that offers children's favourites like "Babar,'' "The Berenstain Bears'' and "Franklin.''

But the company declined to provide usage figures or subscription revenue details for the new initiative.

"We look at that as an opportunity to experiment, so nothing meaningful to report at this time," Cassaday said.

Corus is controlled by the Shaw family, but operates separately from Shaw Communications Inc. (TSX:SJR.B). The company owns a variety of television, radio and production assets, including a slate of specialty channels, including YTV, Treehouse, Nickelodeon Canada, ABC Spark, which cater to children and family shows.

It also operates the W Network, the Canadian version of OWN: Oprah Winfrey Network and Cosmopolitan TV.

The company runs 37 radio stations, children's book publishing, and animation assets.

Corus is in the midst of acquiring some assets that BCE Inc. (TSX:BCE) is selling to receive approval from regulators for its purchase of Astral Media. The transaction will allow Corus to buy the remaining half of Teletoon from Astral and other TV and radio interests.