The holiday period wasn't a happy one for Electronic Arts, and the video game giant does not expect much improvement in the new year.
EA's fiscal third quarter — which encompasses the all-important Christmas shopping season — fell far short of analysts' already reduced expectations. And the company offered a disappointing outlook for the rest of its current fiscal year, and the next one.
So EA is slashing more jobs and closing more facilities than it had previously announced.
EA was affected by the poor economy, which led retailers to reduce inventory below expected and historical levels, company Chief Executive John Riccitiello said Tuesday on a conference call with analysts.
But some of the game maker's problems were of its own making, Riccitiello acknowledged. The company had no blockbuster titles in the quarter other than "FIFA 09," which sold 7.8 million copies, he noted.
"We're disappointed with our holiday quarter and fiscal '09 performance," he said. "Our titles didn't perform to expectations."
Riccitiello said EA needs to do a better job of marketing its games, reducing expenses and focusing on making games for Nintendo's Wii console.
As part of a restructuring plan announced in December, the company will cut 1,100 jobs — 100 more than originally expected — and close 12 facilities — three more than originally planned.
A disproportionate number of the job cuts will
Despite the gloom, EA's stock rose following the announcement. In after-hours trading, it was up 57 cents, or 3.7 percent, to $16.07. In regular trading Tuesday, EA shares climbed 64 cents, or 4.3 percent, to $15.50.
"I think people were encouraged that the cost cuts seemed pretty extensive," said Tony Ursillo, an analyst with Loomis Sayles, a mutual fund company that does not own shares of Electronic Arts. "I think they feel better about betting on $1 in earnings" next year.
But even that, combined with the fact that EA's stock has fallen 67 percent over the past year, doesn't make EA a bargain in Ursillo's book.
"There are still questions about their ability to put out new titles that are successful," he said.
In the quarter ended Dec. 31, the Redwood City video game publisher lost $641 million, or $2 a share, on sales of $1.65 billion. In the same period in 2007, EA lost $33 million, or 10 cents a share, on $1.5 billion in sales.
Including deferred revenue and excluding certain charges, the company would have earned $179 million, or 56 cents a share, in the just-completed quarter.
On this basis, analysts polled by Thomson Reuters expected the company to earn 88 cents a share on sales of $1.9 billion. In the same period a year earlier, it posted a pro forma profit of $290 million, or 90 cents a share.
Blaming worse-than-expected holiday sales, the company warned in December that it wouldn't meet the full-year forecast it gave in October, but did not offer new targets. Tuesday it did, and the outlook was much worse than anticipated: The company now expects to post a full-year loss ranging from $3.29 to $3.56 a share on sales ranging from $4.2 billion to $4.25 billion.
Including deferred revenue and excluding noncash charges, the company expects to post a loss of 35 cents a share.
That's significantly below the forecasts analysts put together following the December warning. Before Tuesday's announcement, analysts had predicted the company would post a pro forma profit of 60 cents a share for the year on sales of $4.66 billion.
The company also gave a disappointing outlook for fiscal 2010. In that year, which begins in April, the company expects to post a bottom line ranging from a loss of 5 cents a share to a profit of 40 cents a share, or on a pro forma basis, a profit of $1 a share. The company expects to post sales of $4.2 billion to $4.35 billion.
Analysts had previously predicted pro forma 2010 earnings of $1.09 a share on sales of $4.68 billion.
EA's job cuts amount to about 11 percent of its total work force. In addition to the layoffs and the site closing s, EA plans to reduce the number of titles it releases and cut other costs. As part of its restructuring plan — the latest of several in recent years — EA plans to record $65 million to $75 million in charges over the next year.
The company expects the changes will reduce its planned operating expenses by $500 million in its next fiscal year.
EA's new full-year guidance implies that the company expects to post a pro forma loss for its current fourth quarter of 42 cents a share on sales ranging from $848 million to $898 million.
On this basis, analysts had predicted a fourth-quarter profit of 18 cents a share on sales of $1.02 billion.
Contact Troy Wolverton at email@example.com or (408) 920-5021.