EA posts 2Q loss but results surpass expectations

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By BARBARA ORTUTAY
The Associated Press
Tuesday, November 2, 2010; 7:43 PM

NEW YORK -- Lower expenses and strong sales of games such as "FIFA 11" helped Electronic Arts Inc. post Tuesday a smaller net loss for its fiscal second quarter, with adjusted results handily surpassing expectations.

But EA's shares dipped in after-hours trading as its earnings guidance for the current quarter seemed to disappoint investors even as the company reaffirmed its guidance for the full fiscal year.

For the three months ended Sept. 30, the company behind games such as "Rock Band" and "Madden" posted a net loss of $201 million, or 61 cents per share. This compares with a loss of $391 million, or $1.21 per share, the same time last year.

Revenue fell 20 percent to $631 million from $788 million.

On an adjusted basis, however, EA earned a profit of 10 cents per share and its adjusted revenue was $884 million. On this basis EA had forecast a loss of 10 cents per share.

Analysts, meanwhile were expecting an adjusted loss of 10 cents per share on revenue of $815 million, according to a Thomson Reuters survey.

EA's adjusted results are more closely watched by investors because they exclude special items and account for deferred revenue from games with online components.

The video game industry has seen retail sales decline this year, due in large part to declining sales of music games and the Wii from Nintendo Co. EA, however, is more invested in "high-definition" consoles, that is, the Xbox 360 and the PlayStation 3. Both are expected to get a boost over the holidays with the launch of new motion controllers from Microsoft Corp. and Sony Corp.

The quarter's operating expenses dropped 15 percent to $520 million as the company cut back on development and marketing costs.

CEO John Riccitiello said in a conference call that EA continues to focus on producing "fewer, bigger packaged games" and controlling expenses. The company is working on shifting more of its workers to cheaper locations, and has been slimming down its portfolio to focus on lucrative, high-quality games while pushing aggressively into new revenue streams such as Facebook games and digital add-ons for games sold in stores. EA bought Chillingo, the publisher of "Angry Birds" a popular, quirky game for the iPhone and Android, earlier this month for about $20 million.

Chief Financial Officer Eric Brown said "Medal of Honor," a shooter game that takes place in modern-day Afghanistan, has sold 2 million units, ahead of its expectations. The game came under fire earlier this year because it included an option - now defunct - to fight as a member of the Taliban. The game launched to lukewarm reception from many reviewers.

For the current quarter, EA forecast a net loss of 70 cents to 85 cents per share, or adjusted earnings of 50 cents to 60 cents per share, below the 70 cents per share that analysts are expecting.

EA expects adjusted revenue of $1.38 billion to $1.5 billion. Analysts are expecting revenue of $1.44 billion.

A big part of this quarter's shortfall is because EA moved "FIFA 11" into the second quarter from the third, which in turn boosted the second quarter's results.

Sterne Agee analyst Arvind Bhatia said the quarter was a "nice upside surprise" and added he thinks EA' shares are "going to be fine tomorrow."

Upcoming big games from EA include "Need for Speed Hot Pursuit," which goes on sale later this month. The company is also working on a multiplayer "Star Wars" game, but that won't launch in the current fiscal year.

EA's earnings came the same day the Supreme Court heard arguments over a California law that seeks to ban violent video games from being sold to children. Lower courts have said the law violates minors' constitutional rights under the First and Fourteenth amendments and other states have struck down similar laws.

Shares of Redwood City, Calif.-based Electronic Arts slid 49 cents, or 3 percent, to $15.71 in after-hours trading. The stock had closed up 40 cents, or 2.5 percent, at $16.20 amid a broader market rally.


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© 2010 The Associated Press

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