(Updates with details on job cuts, fresh stock quote)
DOW JONES NEWSWIRES
Electronic Arts Inc.'s (ERTS) fiscal third-quarter net loss
widened as the company had a disappointing holiday season and took
big charges, prompting it to offer disappointing guidance and to
plan cost cuts.
The videogame maker again increased the number of jobs it
intends to cut, this time by 100 to 1,100 positions, about 11% of
its work force, as part of an aggressive cost-cutting plan. Less
than two months ago, the company raised the total to 10% of its
work force from 6%.
During a conference call with analysts, Electronic Arts Chief
Executive John Riccitiello said he was "disappointed" with the
results, which were due mainly to retailers dramatically scaling
back orders on titles that weren't top sellers, which exposed
Electronic Arts' weakness in delivering top hits. Riccitiello also
outlined additional cost cuts, including more plant closings and a
new corporate emphasis on producing only top-tier titles.
"While we began cost cutting in the quarter, we couldn't get
ahead of the revenue shortfall," Riccitiello said.
Shares, which were halted for a short time after hours, recently
traded up 6.4% to $16.49 from the Wednesday close of $15.50 despite
the results falling significantly short of analysts' estimates. The
shares are off more than 70% from their 52-week high of $54.81 in
May.
"A complete disaster," Mike Hickey, analyst with Janco Partners,
said of the results. "EA didn't do an adequate job. They are
lacking any sustainable growth engine in my view."
The company, well known for its "Rock Band" and "Madden" sports
franchises, reported a net loss for the quarter ended Dec. 31 of
$641 million, or $2 a share, compared with a year-earlier net loss
of $33 million, or 10 cents a share. The latest quarter included
charges of $368 million for the impairment of its wireless business
and $244 million for a valuation-allowance reserve on deferred tax
assets.
Excluding stock-based compensation and those other items, the
company's earnings fell to 56 cents a share from 90 cents.
Revenue rose 10% to $1.65 billion, excluding a deferred-revenue
benefit from online-enabled packaged goods games and digital
content. Including the benefit, revenue was up slightly to $1.74
billion.
A Thomson Reuters analyst survey projected adjusted earnings of
88 cents on revenue of $1.9 billion, excluding the deferred-revenue
benefit.
Electronic Arts' gross margin fell to 44.1% from 48%. The
company has been slashing prices to prime the pump for sales.
Electronic Arts Chief Financial Officer Eric Brown, in an
interview, said the company also had a higher mix of less
profitable games sold.
For fiscal 2009, the company now expects an adjusted loss of 35
cents a share on revenue of $4.2 billion to $4.25 billion. The
adjusted revenue is seen at $4.1 billion.
Even though EA had warned earlier that it would be upgrading its
guidance, the swing from expecting a healthy profit to a loss was
jarring. "Their credibility is shot," Janco's Hickey said.
The videogame industry had been seen as a resilient play in the
current economic climate, but a weaker-than-expected holiday season
forced Electronic Arts to scrap its fiscal-year outlook in
December. Analysts also pointed to the company's high
research-and-development costs and lackluster new titles,
especially for Nintendo Co.'s (NTDOY) big-selling Wii console.
The company had already lowered its fiscal-2009 earnings
expectation to a range of $1 to $1.40 a share in October, though it
stood pat at the time on its revenue guidance of $4.9 billion to
$5.15 billion.
Electronic Arts said the retrenchment will cut fiscal-2010
operating expenses by about $500 million. In addition to the job
cuts, which are 10% more than the company previously announced,
cost-cutting efforts also include the closure of 12 facilities, up
from the previously announced seven, and a narrowing of its product
portfolio. The restructuring will result in charges of $65 million
to $75 million over the next 12 months.
For fiscal 2010, Electronic Arts expects adjusted earnings of $1
a share on revenue of $4.2 billion to $4.35 billion, with the
adjusted revenue at $4.3 billion.
Electronic Arts CFO Brown said the company is assuming the
videogame industry will increase revenue by low-to-mid single digit
percentages in 2009. "We're still expecting growth, but it will
slow down," he said. "We want to operate much leaner."
Electronic Arts on Tuesday also pushed back the release date of
three potential top sellers - including the latest version of its
"Sims" franchise - to its fiscal 2010. That should help drive the
top line, Brown said.
Wall Street currently expects per-share earnings of 60 cents on
revenue of $4.66 billion for fiscal 2009 and earnings of $1.09 a
share on revenue of $4.68 billion for fiscal 2010.
-By Jay Miller, Dow Jones Newswires; 201-938-2331;
jay.miller@dowjones.com
(Ben Charny contributed to this report.)
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