Lionsgate stock plummets after ‘Mockingjay 2’ drives disappointing earnings

Lionsgate shares plummeted Friday after the movie and television studio reported worse-than-expected third-quarter earnings, due partly to disappointing profits from the final “Hunger Games� movie.

The Santa Monica entertainment company’s shares fell $6.92, or 27%, to $18.53 in trading on Wall Street, its steepest decline since the company went public in 1998, according to FactSet.

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Investors were rattled by the company’s latest financial results. Lionsgate on Thursday said its adjusted profit was $40.7 million for the three months ending Dec. 31, down nearly 60% from the same quarter a year ago, due to lower film revenue. Total sales for the company fell 10% to $670 million during the quarter.

The company’s stock has declined significantly since “The Hunger Games: Mockingjay — Part 2� hit theaters last fall and fell short of expectations. In a conference call with analysts, Lionsgate Chief Executive Jon Feltheimer indicated that the relatively weak performance of “Mockingjay — Part 2� could lower profits through 2017.

“Although ‘Mockingjay 2’ grossed $650 million at the worldwide box office, its domestic performance fell short of our expectations,� Feltheimer said. He said the film was “underperforming profit margins by over $100 million� and had been hurt by the dominance of Walt Disney Co.’s “Star Wars: The Force Awakens.�

“Mockingjay — Part 2,� starring Jennifer Lawrence as the young-adult sci-fi hero Katniss Everdeen, grossed $281 million in ticket sales from the U.S. and Canada, 17% less than the previous installment.

Overall motion picture revenue was $506 million in the quarter, down from $590 million the year before. Profits from movies were squeezed by the costs of releasing four major theatrical movies during the quarter, compared with just two a year ago.

“At its core, the motion picture [segment] was much weaker than expected,� Stifel analyst Benjamin Mogil said in a research report.

However, Lionsgate’s television business, which makes shows such as “Orange is the New Black� for Netflix, continued to show signs of growth in the quarter. Television production revenue increased slightly to about $165 million, and the company said shows such as “Orange is the New Black� and ABC’s “Nashville� should drive stronger growth during the fourth quarter.

J.P.Morgan analyst Alexia Quadrani, in a note to clients, said the stock sell-off was an overreaction, given the increases in the TV business.

“We believe a meaningful offset that investors are missing is the highly valued TV business, which has doubled in size from the time the first Hunger Games film,� Quadrani said in her note.

Lionsgate’s stock slide came amid broader market declines after a report showed the U.S. job creation slowed in January. The Dow Jones industrial average fell 1.3%, while the Standard & Poor’s 500 index lost 1.9%.

Other media companies fell in Friday trading, including Viacom Inc. (down 5%), Twenty-First Century Fox (down 4%) and Time Warner Inc. (down 4%).

The stock declines for Lionsgate also reflected mixed investor reactions to the studio’s disclosure that it is considering a merger with the premium cable channel Starz. In a regulatory filing, the “Hunger Games� studio said it “intends to explore whether there is a potential mutually beneficial combination of the two companies.�

Media mogul John Malone a year ago acquired a minority stake in Lionsgate through a stock swap with Starz, which Malone also backs.

The filing suggests that the discussions are in early stages and that a deal is not certain to happen, but the companies are exploring a number of different deals that could benefit shareholders of both firms.

Starz’s stock followed Lionsgate’s, falling $6.93, or 22%, to $24.30.

Follow Ryan Faughnder on Twitter for more entertainment business coverage: @rfaughnder

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