THQ Outlook Disappoints

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THQ Inc reported a stronger-than-expected first quarter profit, but shares fell 19 percent Wednesday morning after the video game maker provided a lukewarm outlook and announced it planned to sell $90 million in potentially diluting convertible notes.

The Agoura Hills company late Tuesday reported net income of $6.4 million (9 cents a share) for the quarter ended June 30, compared with a net loss of $27.2 million (-41 cents) a year ago. Sales jumped 77 percent to more than $243 million, boosted by sales of its “UFC 2009 Undisputed” game.

Excluding items, profit was 10 cents a share, better than the average 6 cents loss on sales of $208 million expected by analysts surveyed by Thomson Reuters.

“We reported the highest June quarter net sales and net income in our history,” Chief Executive Brian Farrell said in a statement. “Our first quarter results demonstrate the benefits of our more focused product strategy and aggressive cost management.”

But shares slide when the company, which also publishes the “Saints Row” and “Red Faction” game series, said it now only expects adjusted sales of $85 million to $95 million in its second quarter, because no new games are scheduled to launch during the period. Analysts have expected more than $123 million in revenue.

THQ said proceeds from the private placement would improve the company’s financial flexibility and help fund future growth. The senior convertible notes, which would be due in 2014, are equivalent to more than 15 percent of THQ’s $560 million market cap.

THQ shares got a boost Monday after an arbitrator determined that partner Jakks Pacific Inc was entitled to 40 percent lower preferred return payment rate from their World Wrestling Entertainment Inc video game joint venture than Jakks had sought.

Shares closed down $1.60, or 19 percent, to $6.81 on the Nasdaq.

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