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THQ swings to a quarterly profit, aided by sales of UFC 2009 Undisputed

VIDEO GAMES

Shares fall 7% after hours, though, after a disappointing second-quarter sales forecast. But one analyst sees the first-quarter results as a sign of a turnaround.

July 29, 2009|W.J. Hennigan

Video game publisher THQ Inc. fought its way to a fiscal first-quarter profit, bolstered by sales of mixed martial arts game UFC 2009 Undisputed and war game Red Faction: Guerrilla.

But shares of the Agoura Hills company fell more than 7% in after-hours trading after it gave a sales forecast for its second quarter that disappointed investors.

Analysts had expected sales to reach $121.7 million, but THQ is not expected to release a game in the quarter. With no new releases, it expects revenue to fall to between $85 million and $95 million -- down from $151.6 million a year earlier.

For its first quarter, ended June 30, THQ said it earned $6.4 million, or 9 cents a share. This contrasts with a loss of $27.2 million, or 41 cents, in the same period last year.

Net sales jumped 77% to $243.5 million, up from $137.6 million.

"We reported the highest June-quarter net sales and net income in our history, driven primarily by the success of our hit title UFC 2009 Undisputed," said Brian Farrell, THQ chief executive, in a statement.

The results provided some promising news for THQ, which has been struggling for the last year, hemorrhaging cash as its games failed to connect with owners of game consoles such as Nintendo Co.'s Wii and DS, Microsoft Corp.'s Xbox 360 and Sony Corp.'s PlayStation 3.

THQ has not been alone. The video game industry has had four consecutive months of decline. According to a July 16 report by market research firm NPD Group Inc., sales of video games and consoles in the U.S. fell 31% last month to $1.2 billion -- down from $1.7 billion in June 2008.

The crunch hurt THQ, which laid off 600 workers -- a quarter of its development staff -- and closed several studios this year.

Michael Pachter, an analyst at Wedbush Morgan Securities, said THQ's first-quarter profit could be a sign of a turnaround.

"I think were seeing a bottom here," he said. "After all the bad news, I think people are seeing the end is not near."

UFC 2009 Undisputed has been a hit since launching in May, selling about 3 million copies. This week THQ scored another financial victory when an arbitration judge ruled in the company's favor in a dispute with Jakks Pacific Inc. of Malibu over royalty rates for THQ's WWE wrestling games.

The win, though not a factor in the results announced Tuesday, could add 5 to 10 cents to fiscal 2010 per-share earnings, said Colin Sebastian, an analyst at Lazard Capital Markets.

THQ shares fell 61 cents to $7.80 in extended trading, after the company announced the second-quarter sales forecast and a $90-million debt offering. --

william.hennigan@latimes.com

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