AMC: Q1 earnings ‘pretty positive,’ analyst says

Bloomberg Intelligence Senior Media Analyst Geetha Ranganathan joins Yahoo Finance Live to discuss first-quarter earnings for AMC, annual interest expenses, profit growth, movie demand, and the outlook for AMC.

Video transcript

JULIE HYMAN: Well, the box office is back. But is it enough to give AMC the happy ending it wants? The theater chain reporting earnings with a slate of strong releases driving audiences back to theaters and driving better-than-expected sales and a lower-than-expected loss. I think actually sales might have missed estimates. But the theater chain has not quite reached its expected finale just yet. It continues to burn cash and faces down lawsuits. Here with the viewing angle on the theater and entertainment industry as Geetha Ranganathan, Bloomberg Intelligence senior media analyst. Geetha, It's good to see you here. What do you make of these AMC numbers, and in particular this sort of divergence on the top- and bottom-line beat and miss there?

GEETHA RANGANATHAN: Yeah. Thanks so much, Julie, for having me. So I think overall the sentiment in the box office, the sentiment generally for the theaters is pretty positive. We've seen some really, really good numbers coming out of the movies that have recently released "Super Mario," is, of course, the biggest example. Over $1 billion in global box office, over $500 million at the domestic box office. So it's absolutely stunning, and that has really led to a lot of optimism generally in the box office outlook for this year.

So remember when we kind of started out, we were thinking about $8 to $8 and 1/2 billion for domestic box office. That's gone up now to close to almost $9 to $9 and 1/2 billion. So I think the top line is definitely looking a lot stronger. Remember for AMC the good thing for them is they over index to the premium large format. So they have the largest number of IMAX screens. They have all these recliner seats, all the bells and whistles in their theaters. So they are able to aggressively charge both on ticket prices as well as concessions.

But again, the big problem for AMC, as well as a lot of the other theaters, has been their huge levels of debt. And so that's kind of where we are seeing a lot of the ongoing, I guess, doubts, ongoing skepticism about whether these movies can still sustainably generate a good bottom line, good profitability numbers. So again, that still has to play out. But I think overall we're definitely seeing a much more stronger, much more positive tone.

BRAD SMITH: Does that mean that this company is going to need to raise capital again, either through an at-the-market equity offering that we've seen them do that, I think, netted them over two different tranches about $1 billion essentially. So is that something that they might have to explore again from your perspective?

GEETHA RANGANATHAN: I think absolutely they will. So they have about $5 billion in debt, and it's a substantial amount that almost results in about $400 million in annual interest expenses. So I think for a long term, sustainable business profile, they obviously do need to raise capital at some point. I think they have sufficient liquidity right now, but again, they will need to raise capital. And they've been taking a lot of measures towards that. So the whole creation of the APEs, or the Preferred Equity Units, as well as now all of the different motions to convert that or combine them with the shares, is their way of-- finally paving the way for them to raise more capital.

Of course, there are still a few legal hurdles that they have to overcome. I think there's a June hearing that is still pending. But eventually, the idea is that they should be able to raise a substantial amount of capital and dig themselves out of this debt hole.

JULIE HYMAN: At the same time, Geetha, any capital they raise is going to be at a higher rate, right, because we have seen these rates go higher. I know that you don't give necessarily stock recommendations, but is all of this going to continue to be an overhang for the stock? Or once they sort of succeed in maybe raising that capital, will that maybe unlock some value for shareholders?

GEETHA RANGANATHAN: I think that will definitely be a major catalyst surely. Because once they're able to raise that capital and you have this box office outlook strengthening-- So we've already seen this tremendous upsurge in terms of sentiment. Because there was always this big fear about has streaming kind of killed the movie business? But we are not necessarily seeing signs of that, at least this year, because studios are making huge commitments to the theaters. And we're seeing people kind of come out in droves.

And as you just see, actually today is kind of the start of the summer season with the "Guardians of the Galaxy" release. And we have a fantastic slate. So we're seeing 35% higher number of movies released this year in theaters. And we're going to see that slate only strengthened further into 2024 and 2025. So I think definitely that optimism and that bullishness, combined with their capital raise, definitely does point to a much more encouraging outlook.

BRAD SMITH: Geetha, AMC chief financial Officer Sean Goodman had this to say on their call about their plan to keep the money flowing, and just want to play this quick clip and get your reaction on the other side.

SEAN GOODMAN: --loyalty programs and the AMC app to our food and beverage innovations, 3, sight-and-sound experiences through advanced laser projection technology and premium offerings. And 4, diversification initiatives such as the successful launch of the AMC ready-to-eat and microwave popcorn and the AMC branded credit card.

BRAD SMITH: Now as our team knows, I'm not a fan of popcorn, so that's not going to move the dial for me. But perhaps if I was a rewards member and I was trying to stave off my discretionary spending from being hit by an expensive movie theater experience, then I would lean further into that if I was going through an impending recession. So based on what we've seen during past recessions and consumer activity and engagement with movie theaters, how is AMC positioned going into an environment that many companies have been spelling out over the course of this earnings season?

GEETHA RANGANATHAN: So entertainment, I mean, movie entertainment or movie going actually tends to be one of the cheaper forms of entertainment, and so it has held up very, very well even during recessionary periods. I mean, we've seen this time and time again. People still love to escape. They still love to go to the movies. And it is still pretty affordable even in this macro downturn. So hopefully, movie going should still hold up.

I mean, at the end of the day you bring up a really important point with the loyalty programs. They do want to get people back in seats. Remember, at the end of the day, they want to be able to sell them you know popcorn and soda because that's really where they make all their money. That's 85% margins versus less than 50% margins on a movie ticket, per se. So at the end of the day, if they can get more people into theaters, into theater seats, that does help their overall profitability profile Very, very, very significantly.

BRAD SMITH: Geetha Ranganathan who is the Bloomberg Intelligence senior media analyst. Geetha, thank you so much for taking the time here today. We appreciate it.