DREAMWORKS' SHRIEK STUDIO CITES 'SHREK 2' IN DISAPPOINTING PROFIT REPORT.

Byline: Greg Hernandez Staff Writer

GLENDALE - A big green ogre named Shrek reared his ugly head and left DreamWorks Animation SKG Inc. with first-quarter earnings well below Wall Street estimates.

DreamWorks executives told analysts Tuesday that they had been far too bullish about continued home-video sales of ``Shrek 2,'' which failed to bring in any expected sales revenue during the quarter.

``While we firmly believe that the 'Shrek' franchise continues to be very strong, it is clear in retrospect that the unique blockbuster characteristics of 'Shrek 2' caused us to overestimate first-quarter retail sales,'' said DreamWorks Animation CEO Jeffrey Katzenberg.

DreamWorks reported net income of $45.7 million, or 44 cents per share, compared with the same period last year when it posted a loss of $25.5 million, or 33 cents a share.

First-quarter revenue was more than quadruple that of a year ago, coming in at $167 million compared with $41 million.

Released on DVD last November, ``Shrek 2'' sold off the shelves (35 million units) in its first two months to fuel fourth-quarter earnings. But the third-highest-grossing film in history could not keep up that same breakneck pace at retail after eight weeks although the company saw $9 million in revenue from ``Shrek 2'' licensing and merchandising.

DreamWorks' most recent release, ``Shark Tale,'' earned $365 million at the box office worldwide and was released on home video Feb. 8. It had sold 12 million units and reached revenue of $142 million by the end of the quarter ending March 31.

Going forward, the company also does not expect to see revenue from its upcoming Memorial Day weekend release, ``Madagascar,'' until the fourth quarter because marketing costs must first be recouped. This will likely result in no profit for the company in each of the next two quarters, executives said.

The lower-than-expected earnings come just a few weeks before the May 27 release of ``Madagascar,'' which, while not expected to reach ``Shrek 2'' levels at the box office, is seen by box office prognosticators as a major summer hit.

``It's got to be at least as successful as 'Shark Tale,''' said media analyst Dennis McAlpine of McAlpine and Associates.

Although the domestic box office has been in a three-month slump, Katzenberg said he is optimistic the May 19 release of ``Star Wars: Episode III - Revenge of the Sith'' will ``fire up the market'' and reverse the downward trend.

``I think our timing is going to end up being extremely fortuitous,'' Katzenberg said.

The PG-rated film is about a group of animals from the New York Central Park Zoo that escape and are forced to try to survive in the wild. The movie, featuring the voices of Ben Stiller, Chris Rock and others, will bow in more than 3,700 locations domestically.

Meanwhile, archrival Pixar Animation Studios blew past first-quarter estimates by announcing earnings Thursday that were more than triple of those a year earlier. Katzenberg's former employer, The Walt Disney Co., will announce its second-quarter earnings today.

``For Jeffrey, I think he's far more concerned with what Disney does but obviously he has to pay close attention to Pixar,'' McAlpine said.

Shares of DreamWorks Animation slipped $2, or 5 percent, to close at $36.50 on the New York Stock Exchange, then plummeted an additional 17 percent in after-hours trading.

Greg Hernandez, [phone]

greg.hernandez(at)dailynews.com

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3 photos

Photo:

(1 -- 2 -- color) These are scenes from DreamWorks' ``Shrek 2,'' the third- highest-grossing film in history that flew off shelves in its DVD release last November to fuel fourth-quarter earnings but failed to live up to expectations in the first quarter.

DreamWorks

(3) A security guard patrols Tuesday as vehicles enter the DreamWorks complex in Glendale. The studio badly missed Wall Street expectations in first-quarter earnings.

Ric Francis/Associated Press