Article from Reuters - July 1, 2005
Pixar Cuts Earnings Target on Slow DVD Sales

LOS ANGELES (Reuters) - Pixar Animation Studios (PIXR.O: Quote, Profile, Research) on Thursday cut its forecast for current-quarter earnings by a third after slower-than-expected DVD sales of its hit "The Incredibles." Its stock dropped 10 percent in after-hours trading.

The Pixar warning followed a similar disclosure in May by rival DreamWorks Animation SKG (DWA.N: Quote, Profile, Research), which stunned investors by reporting first-quarter DVD and video sales for "Shrek 2" that fell far short of the company projections.

One analyst said retailers were keeping DVDs on shelves for shorter periods of time, leading to a sharp drop-off in sales after an initial burst, a pattern similar to the way major releases tend to make their money at theater box offices.

Pixar Chief Financial Officer Simon Bax told analysts that the shortfall included both domestic and international markets and showed no apparent pattern. He declined to comment on any similarities between DreamWorks and Pixar.

"We are now expecting worldwide unit sales to be around 7 percent below where we estimated they would be at the end of the second quarter," Bax said, referring to "The Incredibles," an animated tale of a superhero family.

Pixar cut its forecast for diluted earnings per share for the fiscal second quarter to 10 cents from 15 cents. That translates to a difference in net earnings of about $6 million for the quarter ending July 2, the company said.

Bax said Pixar decided to increase its reserves against potential returns after reviewing data from distributor Walt Disney Co. (DIS.N: Quote, Profile, Research)

"The Incredibles" DVD has posted gross worldwide revenue of $450 million since its release in November and is the best-selling home video so far in 2005.

Pixar Chief Executive Steve Jobs said the company expected "The Incredibles" to generate home video revenues similar to that of "Monsters Inc."

Jobs said the company was "disappointed to miss our guidance this quarter," adding that the revision came during a "trough" period for Pixar when low revenue triggered the requirement to report a relatively small deviation.