Day Dreams to Nightmares For One Company

Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A lot of people have been disappointed with the recent performance of video entertainment. Movie theaters seem to have passed by with easy access to online video streaming, and those companies have been very successful. Even with the growing business of entertainment, the traditional companies are still performing with some success. 

Like many other businesses, last quarter was a struggle for Regal Entertainment Group (NYSE: RGC), but it performed better over the course of 2012. Regal is the largest and most geographically positioned movie theatre chain in America with 544 locations. They have theaters in 38 states, and in District of Columbia. Regal's stock grew nearly 16% last year despite a near 5% decrease in revenues. Regal Theaters, Edwards Theaters, and United Artist Theaters (all operated by Regal Entertainment Group) contributed the company’s Free Cash Flow (FCF) increase of 63% last year. 

Cinemark (NYSE: CNK) also saw a decrease in revenues, declining 7% throughout the year. Cinemark has focused its growth in America and Latin America. They are the most geographically diverse circuit in Latin America and third largest in America. Cinemark boasted an 89% increase in FCF, and flaunted a stock that rose over 45% throughout the year. As they continue to grow in Latin America and the U.S., their capital expenditures also rose nearly 19%. Though they are not the largest circuit, they consistently show some of the best box office sales in the industry. 

When people are looking for action packed, 3D movies, they normally think of IMAX (NYSE: IMAX). IMAX is the most widely used system for special-venue film presentations. As of September 2012, there are 697 IMAX theatres in 52 countries. Though revenues decreased 6% in 2012, their stock rose almost 14%. While its stock performed worse than Cinemark or Regal, it did post a remarkable 488% increase in capital expenditures, which correlated to its 242% decrease in FCF. IMAX seems to be focused on growth, which could work to the advantage of companies such as Walt Disney (NYSE: DIS) and DreamWorks Animation (NASDAQ: DWA)

Disney saw approximately a 2.5% increase in revenues, though the company has other avenues of revenue. Their business is separated into five different business areas of media networks, parks and resorts, studio entertainment, consumer products and interactive media. ESPN, Disney Studios, and parks and resorts made up over 70% of Disney's revenues in 2012. With a 31% increase in Disney's stock, they didn't perform as well as Cinemark, but they did post a 28% increase in FCF and over a 6% increase in capital expenditures. Though there doesn't seem to be anything magical about their stock, it does seem to be on a steady increase both short term and long term.

DreamWorks is an American animation studio based in Glendale, California, and has created films such as Shrek 2Shrek the ThirdShrek Forever After, and Madagascar 3: Europe's Most Wanted - all four of which rank in the top 50 highest grossing films of all time. Even with films like this, revenues decreased over 11% in 2012. DreamWorks seems more like a nightmare than a dream as FCF decreased 410% and capital expenditures fell 19% in 2012. Shareholders felt the result of this as the stock fell over 9% last year. 

RGC data by YCharts

The Bottom Line...

New movie releases for any of these companies could play a major role in how they perform, but it’s difficult to know which films will succeed and which will fail. After all, the industry is ever changing and full of unknowns. It does seem as though DreamWorks is a company that I would avoid having too much hope in at this time. It would be difficult to just pick one company between Cinemark, Regal, or Disney as 'most likely to succeed' in the class of 2013. They have all shown a steady history of success, and still post favorable numbers. 

 


tlwofford has no position in any stocks mentioned. The Motley Fool recommends DreamWorks Animation, Imax, and Walt Disney. The Motley Fool owns shares of Imax and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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