Take-Two meets earnings forecasts

Take-Two executives predicted earnings in the fiscal second and third quarters would fall short of analysts' estimates. However, the company also sees fourth-quarter profits higher than a consensus of analyst forecasts.

"We feel very strong about where our business is going relative to PlayStation 2 and relative to what Sony has been telling us," CFO Jim David said during a Monday afternoon conference call with analysts. "Overall for the year, we feel good."

Take-Two develops and distributes games for PCs as well as for Sony's PlayStation, Microsoft's Xbox and game consoles from Nintendo and Sega.

Shares of Take-Two were unchanged in after-hours activity on the Island ECN, immediately following the earnings report. Take-Two rose 50 cents to $12.13 in Monday's regular trading ahead of the news.

Take-Two now expects to earn 10 cents to 13 cents per share on revenue of $86 million to $90 million in the second quarter. Analysts surveyed by earnings tracking firm First Call were looking for second-quarter net income of 13 cents per share on revenue of $92.1 million.

The company sees third-quarter revenue of $90 million to $95 million, or roughly in line with consensus expectations of $91.1 million, but it expects third-quarter earnings of 4 cents to 6 cents per share, or less than half of First Call's prediction of 13 cents per share.

Third-quarter results will be lower than originally expected because the company decided to delay the release of an Austin Powers game, executives said. Take-Two wants the game's introduction to coincide with the next Austin Powers movie release.

The company's reduced near-term projections come as little surprise, said Richard Zimmerman, analyst with Janney Montgomery Scott. "I don't think they're saying anything they didn't say before," Zimmerman said.

Many game software companies predicted a slow start to the first half of the calendar year because of a temporary shortage of Sony's PlayStation 2 consoles outside Japan. PlayStation 2 games generated 80 percent of Take Two's publishing revenue in the fiscal first quarter.

Publishing generated about 45 percent of Take-Two's sales in the first quarter. About 55 percent of revenue came from the company's distribution business.

Observers of the game software market have been forecasting a surge in sales in the second half of 2001, as the worldwide base of users for Sony's PlayStation 2 reaches the double-digit millions and other companies such as Microsoft and Nintendo introduce new platforms.

"We as an industry will not realize this opportunity until the fourth quarter," said Paul Eibeler, president of Take-Two. "We think the best is yet to come."

Fourth-quarter earnings will be 58 cents to 62 cents per share, on revenue of $188 million to $195 million, Take-Two said. Both figures are higher than First Call's current fourth-quarter estimates.

Take-Two executives reiterated their previously stated goal of full-year net income of $1 per share, with sales of more than $500 million.

Take-Two reported fiscal first-quarter net income of $7.8 million, or 24 cents per share, on sales of $131 million. Analyst consensus called for a profit of 24 cents per share on revenue of $142.7 million for Take-Two's quarter ended Jan. 31, according to First Call.

First-quarter revenue increased more than 6 percent year-over-year but fell short of First Call's consensus forecast. Distribution sales were hurt by the PlayStation 2 shortage, Take-Two said.

"I think it was a good quarter, considering what Take-Two had to go against," Zimmerman said. "Right now, management's execution is on track."

Roughly 79 percent of Take-Two's sales were in North America. Console games provided 55 percent of overall revenue, followed by 34 percent from PC software, 4 percent from games for Nintendo's Game Boy unit, and 7 percent from gaming accessories.

Take-Two's gross margin increased to 33 percent in the first quarter from 30 percent in the comparable period a year earlier, thanks to improved margins in the company's distribution business, David said.

Also Monday, the company said Kelly Sumner, who oversaw Take-Two's international operations, has become CEO of the company. Take-Two founder Ryan Brant will remain chairman. Promoting Sumner and hiring people to fill the new positions of vice president of finance and director of investor relations should raise Take-Two's profile on Wall Street, Zimmerman said.

"They've made an investment in their management team," he said. "That bodes well for a company that's going to $500 million in annual sales, but isn't followed closely."