DreamWorks Animation's Q2: No growth, but acceptable quarter

DreamWorks Animation (NYSE: DWA), a studio that battles against Disney (NYSE: DIS), News Corp. (NASDAQ: NWS), Time Warner (NYSE: TWX), and Sony (NYSE: SNE) in the highly competitive world of computer-generated cartoons, published its second-quarter earnings earlier in the week. They didn't scream to the world "we're a growth company!", but looks might be deceiving. The company seems to be doing fine, and you most likely would do well to take a long-term approach with this business.

Earnings came in at 30 cents per share. You probably won't like that earnings were 30 cents per share in the year-ago period as well. Agreed: 0% growth doesn't give a shareholder a whole lot to jump up and down about. Thing is, though, that DreamWorks Animation basically wants to hold its own until the next big catalyst. The home-video release of the studio's latest theatrical production, Monsters vs. Aliens, is slated for release in the early fall. So, from that point of view, maybe we can cut the company some slack.

And if you're wondering why that film hasn't already contributed a lot of cash, remember that it's the DVD release that makes a ton of the money -- all the high costs associated with the production and the selling of the film must first be amortized at the box office.

So what were the drivers this quarter? Kung Fu Panda and Madagascar: Escape 2 Africa led the revenue parade. They are already living it up in the ancillary channels that go beyond theatrical exhibition. Also, it should be mentioned that an amendment relating to a deal with Activision Blizzard (NASDAQ: ATVI) for the valuable DreamWorks Animation video-game license significantly contributed to the quarter.

The press release said that Monsters vs. Aliens grossed $377 million at theaters around the globe. A bit weak compared to other titles from the company's portfolio, in my opinion anyway. Hopefully the DVD will still sell well. Overall, I think DreamWorks Animation had an acceptable quarter. Cash flow looks good enough, and we all have to remember that the next Shrek sequel will be out in summer 2010. Talk about an upcoming catalyst, right?

Shares of DreamWorks Animation closed higher on Wednesday by over 8%. The market liked the earnings performance. Long-term holders can continue to hold if they'd like: the story remains intact. Those looking to establish a position should wait for a pullback.

Disclosure: I own Activision Blizzard, Disney; positions can change without notice.

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