THQI PE:82 ( $58-$53 )THQ meets Q2 estimates, sees growth through '05
(UPDATE: adds byline, quotes from CEO and analyst in grafs 2, 7, 20. Previous CALABASAS HILLS)
By Ben Berkowitz
LOS ANGELES, July 19 (Reuters) - Video game publisher THQ Inc. (NasdaqNM:THQI - news) on Thursday posted a second-quarter profit, reversing a loss in the same quarter last year on continuing strength in video game sales, and forecast strong growth for the next few years.
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``It looks like there's a pretty good growth potential over the next four years,'' THQ chief executive Brian Farrell said in a phone interview. Farrell said the introduction of four new consoles this year is expected to drive continual demand for new games. ``There doesn't appear to be (a downside) in the next two to four quarters.''
THQ said second-quarter net earnings, after taxes and before charges, were $3.5 million, or 15 cents per share, compared with a loss before charges of $2.7 million, or 14 cents per share, in the year-earlier quarter.
Analysts had forecast earnings of 13 cents per share on average, according to estimates from 11 brokers surveyed by Thomson Financial/First Call. THQ had reaffirmed its second-quarter guidance of 12 cents to 14 cents a share in April.
THQ develops games for consoles from Sony Corp. , Nintendo Co. Ltd. , and Microsoft Corp. (NasdaqNM:MSFT - news) as well as PCs. The company also says it is the largest producer of handheld games in the world, after Nintendo.
James Lin, an analyst with Jefferies & Co., said that even if there were a shortfall in available units for the forthcoming Microsoft XBox and Nintendo GameCube consoles later this year, the company would not suffer any material effects.
``The visibility with this company has never been better,'' Lin added.
THQ's second-quarter revenues rose 70 percent to $55.2 million from $32.4 million in the year-ago quarter and fell 7 percent from $59.3 million in the prior quarter.
Chief Financial Officer Fred Gysi said on a conference call to discuss earnings that 30 percent of the total revenue for the quarter came from sales of ``Red Faction'' for Sony's PlayStation 2, which will come out in a PC version this quarter.
PS2 games together accounted for 37.4 percent of revenues in the quarter; Farrell noted on the call that all three PS2 games were developed in-house, eliminating royalty fees and increasing revenue.
According to Gysi, international revenue for the quarter was 40 percent of the total revenue, though Farrell said that he expects international revenue to be 33 percent to 35 percent for the year.
The Calabasas Hills, California-based company also said that it was raising earnings guidance for the full year to a range of $1.38 to $1.47 a share. The company had previously expected earnings per share for the year in the range of $1.35 to $1.45. The Thomson Financial/First Call consensus estimate of 12 analysts was for earnings of $1.43 for the year.
Specifically, Gysi said third quarter earnings were projected at 9 to 12 cents, with fourth quarter earnings, traditionally the strongest quarter for game companies, in the range of $1.10 to $1.16. While declining to provide exact revenue guidance for the rest of the year, he did say ``the revenue numbers that are out there are not inconsistent with our internal projections.''
THQ shares closed down 3.5 percent at $54.92 on Nasdaq. Shares in the company have risen over 133 percent this year, in line with strong gains throughout the industry. Shares in the company were up to $56.00 in after-hours trading on Instinet.
According to the NPD Group's TRSTS Video Game Summary for June, THQ had two games in the top 20 best sellers: ``Red Faction'' for Sony's PlayStation 2 at number 12 and ``GT Advance Racing'' for Nintendo's Game Boy Advance at number 19. Nine of the top 20 games were released by traditional third-party publishers like THQ and rival Activision Inc. (NasdaqNM:ATVI - news).
The TRSTS June data also showed that THQ fell to number six in the list of top 20 overall video game manufacturers, down from number five in May. The company is the No. 3 publisher for PlayStation 2, No. 7 for the original PlayStation and No. 2 for Nintendo's N64 console.
For the rest of the year THQ plans 12 to 14 new Game Boy Advance games and four new XBox titles, in addition to new games for the PC and existing consoles. The company's first GameCube games will be available in the first quarter of next year.
Like Jefferies & Co.'s Lin, Farrell said he is not as concerned about initial shipments of new consoles later this year as about continuing availability.
``What we're really focusing on is how fast can these guys ramp up the supply,'' he said.
Doug Lowenstein, the president of the Interactive Digital Software Association, said the industry is at the beginning of an upsurge and predicted, like Farrell, strong growth in the coming quarters.
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