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Electronic Arts Posts 27% Gain in Profit

Net income rises to $97.3 million in the quarter, but the video game publisher issues a weaker holiday outlook.

October 20, 2004|David Colker | Times Staff Writer

Electronic Arts Inc. said Tuesday that profit in its fiscal second quarter was up 27%, but that its sales outlook for the all-important holiday shopping season was flat at best.

In the three months that ended Sept. 30, EA's net income climbed to $97.3 million, or 31 cents a share, from $76.6 million, or 25 cents, a year earlier. The consensus estimate of analysts polled by Thomson First Call was a profit of 35 cents a share.

Sales rose 35% to $715.7 million as the world's largest independent video game publisher released titles from its strong franchises, including "Sims 2" and "Madden NFL 2005."

But for the holiday quarter -- during which EA usually takes in about half its revenue for the year -- the company is facing strong competition from rivals that are expected to release blockbusters.

Redwood City, Calif.-based EA warned in July that sales in the October-to-December period would be flat. But the updated outlook issued Tuesday was even worse: It predicted that sales would be no less than $1.4 billion but no more than $1.48 billion -- the same amount it brought in last year.

"Most people take the midpoint of an estimated outlook, so that means they will be down," said P.J. McNealy, an analyst with American Technology Research in San Francisco.

Investors reacted by driving EA's shares down more than 6% in after-hours trading to as low as $43.60. The stock had risen 14 cents to $46.66 in regular Nasdaq trading before the earnings report.

"The problem for EA is that they have no games coming out for the holiday titled 'Halo 2' or 'Grand Theft Auto,' " said McNealy, citing two other companies' games that are expected to be big hits.

"Halo 2" has sold more than 1.5 million copies, publisher Microsoft Corp. said, even though the game is not due to be released until Nov. 9.

By comparison, EA's "Madden NFL 2005" had been on store shelves a week before it racked up sales of 1.35 million.

"It's true there are more competitive titles out there," Chief Executive Larry Probst acknowledged during a conference call with analysts. "We believe we will hold share in the year, and we will move into calendar 2005 in a strong position."

EA also said its board had authorized the spending of as much as $750 million to buy back company stock over the next year.

Analyst Michael Pachter of Wedbush Morgan Securities in Los Angeles said that probably would reduce the number of EA shares outstanding by about 5%. That, in turn, would make the company's results look stronger.

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