A profit warning from cinemas group AMC Entertainment Holdings Inc (NYSE:AMC) wiped more than 25% from the company's market value.
Sector peers such as Cinemark Holdings Inc (NYSE:CNK), Regal Entertainment Group (NYSE:RGC) and Imax Corp (NYSE:IMAX, TSE:IMX) also flopped in sympathy, after AMC's raised a red flag over its second quarter earnings, due to be released next week.
The company said it expects to plunge into the red, reporting a loss of between US$178.5mln and US$174.5mln, which is quite a turnaround from a profit of US$24mln in the same period of 2016, and can be largely explained by a US$202.6mln impairment charge related to its investment in National CineMedia.
According to financial information aggregator Factset, analysts were expecting a loss of around US$5mln.
AMC said revenue for the quarter would fall be around US$1.20bn; analysts had penciled in a figure of US$1.23bn.
Against the US industry backdrop of a weaker-than-anticipated second quarter and estimates for a very challenging third quarter, AMC is swinging the ax to reduce sots.
The company expects to achieve at least a US$30 million adjusted EBITDA (underlying earnings) contribution from cost savings and revenue enhancements through to the end of 2017, which will include strategic pricing, promotional incentives, adjusting scheduling practices, reductions in operating hours, staffing levels, and additional general operating expense line items.
“AMC will remain a 'show me' story until management demonstrates that the “new normal” is EBITDA margins of 18% or higher,” opined broker Wedbush.
“We are tentatively lowering our 2018 estimates for revenue to $5,500 million from $5,592 million and our adjusted EBITDA estimate to $1,002 million from $1,049 million, reflecting an EBITDA margin of 18.2%. We believe that this is the correct figure, but anxiously await a more detailed explanation from management when the company reports earnings next week,” the broker added.
Until then, it is clear that AMC will not command a value as high as it has in the past, Wedbush said, justifying a savage cut to the price target to US$22.75 from US$36 previously.
AMC shares were trading a little below US$16 in early deals.
Wedbush believes AMC can earn significantly more than the broker's own earnings model would imply, but it needs to bang in several quarters of solid earnings before its price starts to recover.