Cinema operators seem to be putting themselves up for sale at such a rapid pace these days that anyone following the cinema exhibition space might believe the industry is in dire straits.
It’s been nearly three years since Wanda purchased AMC Cinemas. Regal Entertainment put themselves on the market in October of last year, but changed their mind three months later when a suitable buyer didn’t show up. Then last month the United Kingdom based Odeon put themselves on the market for a third time.
Add to this list Carmike Cinemas. Last Friday shares of the fourth largest North American cinema chain rose 12% after Reuters reported the company had hired investment bank JP Morgan Chase & Co. to explore a sale. Carmike, which is headquartered in Columbus, GA, was of no help in confirming whether the news was accurate, issuing the standard and expected statement, “The Company has stated that its policy is not to comment on unusual market activity or rumors.”
Unfortunately, the news media and stock analysts do not adhere to such policies which meant they were free to produce a endless number of derivative stories providing details easily found on Carmike’s website. Our initial reaction to the news was to suspect the exhibitor might be trying to draw attention away from a less positive development. This standard business practice has proven rather effective throughout the ages.
However, the report surfaced almost two weeks after Carmike posted its fourth quarter earnings for 2014 which were down. During the quarter the chain had an earnings per share of USD ($0.04), well under analysts expectations of USD $0.20. Still an increase of 7.9% in revenue to USD $185 million caused the company’s stock price to rise 2.2% after its announcement to $32.01. As well, though it may not be ideal to have negative earnings in one’s quarterly financial reports, the reason for the shortfall was attributed by stock-watchers to the cost of the companies recent acquisitions binge.
Carmike President and Chief Executive Officer David Passman was certain to point this out during an earning’s call on March 2nd, reminding attendees, “The fourth quarter was our first full reporting period including the Digiplex acquisition, which was completed in mid-August. Our organization has acquired over 750 screens in just over three years, and we believe there is further runway ahead for consolidation.”