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Report on Business Cineplex earnings miss ‘an anomaly,’ CEO says as shares decline on third-quarter figures

A disappointing third quarter that drove Cineplex Inc.’s share price down more than 20 per cent Wednesday is “an anomaly,” the company’s CEO said.

Cineplex’s profit was dragged down by declines in the media segment of the business, which sells preshow advertising on movie screens, as well as operating digital screens in a number of venues such as fast-food restaurants, malls and banks. While revenue from those digital screens was strong, theatrical advertising took a hit in the three months ended Sept. 30, as a number of sectors – including government, automotive, beverages and technology – cut back on spending.

Ontario’s provincial government used to spend more with Cineplex, but since the election of Premier Doug Ford in June, the new government’s budgets have changed, chief executive Ellis Jacob said. And while the summertime is blockbuster movie season, many advertisers hold back spending until the fourth-quarter holiday period, he added. Cinema media revenue declined 26 per cent to $20.3-million, while overall media revenue was down 6.4 per cent to $33.5-million.

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“It’s basically from now until the end of the year that drives it,” Mr. Jacob said in an interview on Wednesday. “For the fourth quarter, we feel that it will be well in line. It’s not like it’s going to be a big hiccup and it’s going to stay that way.”

The movie-theatre company’s revenues grew 4.4 per cent to $386.7-million in the quarter, boosted partly by gains in box-office and concession revenues. Theatre attendance was up 2.6 per cent to 17.2 million, a result of the popularity of movies including Crazy Rich Asians and Mission: Impossible Fallout. Box-office revenue per patron grew to $10.07, up 2.7 per cent compared with a year ago, while concession revenue per patron was $6.25, up 4 per cent from the same period last year.

Cineplex has been cutting costs and has recorded $19-million in savings in the first three quarters of the year.

In addition to the declines in media, the company’s earnings were hampered by $1-million in restructuring charges and an $8.4-million increase in share-based compensation expenses because of a roughly 20-per-cent growth in Cineplex’s share price in the quarter.

“You miss one quarter and they think the whole world’s coming to an end, like happened last year with the movie business,” Mr. Jacob said. “The big fear last year was everybody thought the movie business was over with. Now, nobody’s talking about how great the box office was.”

The movie-theatre industry in Canada as a whole saw box-office growth of 7.2 per cent in the quarter, and positive trends continued in October as well.

“Thus far in [the fourth quarter], the Canadian industry is up 18 per cent, although we do expect a soft December [compared with the same month last year],” Canaccord Genuity analyst Aravinda Galappatthige wrote in a research note on Wednesday. “What is encouraging is that much of the out-performance is being driven by non-blockbuster titles, which suggests attendance growth from broader demographics.”

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Cineplex’s net income in the third quarter was $10.2-million or 16 cents a share, a 40.7-per-cent decline from $17.2-million, or 27 cents, a year ago.

Cineplex shares closed down 20.8 per cent at $28.56 on the Toronto Stock Exchange Wednesday.

“It’s a tough day when you have this kind of reaction from the shareholders,” Mr. Jacob said. “People see a decline, and right away, they get nervous. … When you look at one quarter in isolation, it looks bad. But you have to look at the overall business and the overall year. My view is, I want to focus on what is this company going to be three to five years from now, not three weeks from now.”

Mr. Jacob said he is optimistic about the appeal of the 2019 film slate, which includes another instalment of the “Star Wars” and “Transformers” franchises, as well as “Mary Poppins Returns" and “Jumanji 3.”

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