The animated dud "Flushed Away" sent $109 million down the drain for DreamWorks Animation in the form of a write-down.
Now, the Glendale animation studio is looking to its reliable green ogre to put the company solidly back in the black. It also moved to shore up its shares with a $150-million stock buyback.
On Tuesday, the company disclosed the exact financial toll "Flushed Away" took on the company, which resulted in a fourth-quarter loss of $21.3 million, or 20 cents a share, compared with a year-earlier profit of $63.2 million, or 61 cents. Sales climbed 18% to $204 million.
The "Flushed Away" charge cut pretax profit by $109 million and per-share net income by 80 cents. The company had warned of a potentially large write-down in November.
"Flushed Away," a film about sewer rats, brought in $175 million worldwide. It marked the studio's last collaboration with Aardman Animations of Britain.
Next up is the computer-animated "Shrek the Third," which opens May 18 in the latest installment of one of Hollywood's most lucrative franchises.
"This is the beginning of the next chapter of DreamWorks Animation," Chief Executive Jeffrey Katzenberg said in an interview.
Still, "Shrek the Third" is opening in the heat of a pre-summer box-office battle, sandwiched between "Spider-Man 3" and "Pirates of the Caribbean: At World's End."
DreamWorks is expected to spend as much as $325 million to make and market the third installment of the fairy tale.
"There is an unprecedented level of competition this May," Katzenberg told analysts during a conference call. "It is more than likely that having these films out at the same time will have some impact on our performance."
Katzenberg noted that despite the difficulties last year, fourth-quarter earnings beat Wall Street's expectations by about 23 cents. The company has been helped by DVD sales of "Over the Hedge" and TV sales for "Madagascar."
Katzenberg was also upbeat about the company's new strategy, which calls for releasing an original film and a sequel every year. Coming this fall is comedian Jerry Seinfeld's "Bee Movie." Next year is the sequel to "Madagascar" and the Jack Black comedy "Kung Fu Panda."
DreamWorks shares fell 84 cents to $26.80 as the broad stock market tumbled. Analysts viewed the buyback generally as a positive.
"We are bullish on 'Shrek' and 'Bee Movie,' " wrote Michael Savner, an analyst with Banc of America Securities. "The buyback provides dry powder in the event of future insider selling or a weak film opening."
Because sequels tend to be more expensive to make and market, DreamWorks is stretching its ogre franchise as far as possible.
"Shrek the Halls," a television special, will air on ABC this holiday season. In 2010, the studio will release "Shrek 4."
And more Shreks will be spawned: In "Shrek the Third" Princess Fiona announces she is pregnant.
"The only thing I am pretty certain of is, that when you are pregnant babies follow," Katzenberg said.