DreamWorks Animation Warns on Shrek Shortfall, Stock Slips

DreamWorks Animation stock tumbled after the animation studio warned 2Q earnings per share will be "meaningfully below" year-ago results. CFO and President Lew Coleman presented at William Blair & Company's Growth Stock Conferencein Chicago, warning about second quarter earnings disappointments, and blaming the weakness on "Shrek Forever After,"the fourth sequel in the Shrek franchise which was released May 21.


This warning comes just a day after Goldman Sachs downgraded shares of DreamWorks Animation from "buy" to "neutral."

Analyst Ingrid Chung lowered her estimate for "Shrek Forever After's" domestic box office to $250 million from $325 million, saying that the studio has to be careful about not "over-saturating" the market.

"Shrek Forever After" was the first time an animated franchise has released a fourth film. Though there were some concerns over whether the brand had run its course, and the estimated $165 million budget film was pushing the limits of moviegoers interest in the brand. But the first three films were so successful—the second in particular, grossing $441 million in the US alone, the studio wanted to fully capitalize on the popularity of its green ogre.

The film opened with just $70 million its opening weekend, that's almost twice the size of the first's Shrek's opening, back in 2001, before kids were familiar with the brand. But the film held up remarkably well — topping the box office its first three weekend in theaters, and bringing in $214 million total.

Despite surprising holding power, the film's going to face major competition this weekend when Disney/Pixar's"Toy Story 3" opens wide. There's a good chance that this film won't hit the $268 million the first Shrek brought in.

Though the studio will continue to collect on the film in the third and fourth quarters as DVD and toy sales continue to come in, the second quarter, which included some massive marketing costs for the movie, will certainly take the biggest hit on this ogre of a disappointment.

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