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The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
Revenue came in below expectations, but once again Regal (NYSE:RGC) proved that it is adept at cost control. Revenue was $693 million, compared with our estimate of $711 million, and the consensus estimate of $719 million. Adjusted EBITDA was $134 million, compared with our estimate and consensus of $126 million. EPS was $0.15, in line with our estimate and below the consensus estimate of $0.17. The company once again did not provide forward guidance.
Mixed results in Q3. Q3 revenue was below our estimate primarily due to a nearly 9% decline in attendance compared to our down 6% estimate. Admissions revenue per average screen was nearly 3% below the industry box office performance, primarily due to a comparable beat relative to the industry in Q3:11 and the latequarter net addition of 69 screens. Concessions were down 5% y-o-y on a dollar basis driven by lower attendance. However, average ticket prices were flat and concessions per cap were up over 4%, leading to a 2% increase in overall revenue per attendee. Flat average ticket prices were primarily due to fewer top movies in premium format compared to Q3 last year. EPS was in line with our estimate primarily due to cost control. Specifically, film rental margins were 55 basis points below Q3:11 despite a higher concentration of box office within the top ten films.
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We lowered our FY:12 estimate for revenue to $2.76 billion from $2.78 billion, while maintaining our EPS estimate of $0.84 to reflect Q3 results. We maintain our FY:13 estimates for revenue of $2.91 billion and EPS of $1.02.
Q4 quarter-to-date box office is tracking up over 15%, with all major Q4 blockbusters still upcoming. We expect Taken 2 to lead October, the Twilight finale to lead November and The Hobbit to lead December releases. We recall that in Q4:11 the release slate was crowded with single-genre weekends, and overall box office receipts suffered as a result. We do not view this as a risk to Q4:12 given a variety of blockbusters within all genres as well as more favorable timing of the release slate compared to last year. As a result, we view our Q4 box office estimate of up 6.2% as conservative.
Maintain our NEUTRAL rating and $15 price target. After accounting for Regal’s ownership stake in National CineMedia, we arrive at a $15 price target. This reflects a ≈ 6x EV/adjusted EBITDA multiple on our 2013 estimates, below its historical multiple of 6.3x and in line with its peers. In our view, this multiple reflects a stable business with low growth, while also reflecting debt levels.
Michael Pachter is an analyst at Wedbush Securities.
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