02/11/2014 07:28 EST | Updated 04/13/2014 05:59 EDT

Cineplex Profit Plunges Despite Higher Attendance Numbers


TORONTO - Cineplex Inc. (TSX:CGX) turned in mixed financial results in the fourth quarter, with the national theatre chain's revenue up significantly but earnings falling short of estimates due to higher expenses.

The quarter ended a year of growth for Cineplex, which bought most of the Empire theatre chain to expand into Atlantic Canada, as well as indoor sign operator EK3 Technologies, now called Cineplex Digital Network.

"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 (TSX:THI).

"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."

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.

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.

Jacobs 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," Jacobs 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 moves "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)."

Another new source of revenue involves Scotiabank (TSX:BNS), 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, N.L.

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