Independent Exhibitors Film Bulletin (1956)

Movie Business On Upbeat (Continued from Page 27) which began Sept. 1, 1955, dropped to 37c a share from 50c in the corresponding period a year ago. These results came as an anticlimax to the encouraging fiscal 1955 annual report. (In the 1955 fiscal year, sales rose to $92.3 million from $66.2 million a year ago and earnings expanded 74% to $1.39 a share), But the poor first quarter earnings, disappointing though they were, are not so ominous as they may first appear. The company has announced that in the month of December alone, it recouped the major portion of the decrease in earnings. We believe that favorable comparisons will be reported for the remainder of the year. Reasons : (1) Stanley Warner's theatre business is expected to improve. The company has booked a number of promising films for showing in its theatres over the coming months. (2) Its Cinerama venture continues to prosper. "Cinerama Holiday" has been drawing enormous audiences. At the same time, the company has a third production — "Seven Wonders of the World" — ready to release. Even if this third picture should fail to equal the popularity of its predecessors, it will probably contribute substantially to over-all earnings, inasmuch as all theatre renovation costs have already been written off against the profits of the first two pictures. (3) International Latex, a wholly owned subsidiary, is expanding rapidly. To meet the growing demand for i products, the company has expanded and modernized i' plants in this country and is constructing a new factor in Scotland. Stanley Warner has an interesting earnings growth p< tentiality, based on its ownership of a substantial amour, of highly liquid assets. In an effort to increase the retur on these assets, the company has been shifting its fund successfully into more profitable channels. We projec average annual revenues in the hypothesized 1959-6 economy to $130 million, earnings to $3.90 a share an dividends to $2.20. Capitalized at 9.0 times earnings § yield 6.3%, consistent with industry-wide norms, sue) results would command an average price of 35, 106% abov the current. ADVICE: Because of a downward adjustment in our earn ings estimate for the 1956 fiscal year (from $2.35 a shar previously to $1.75), Stanley Warner no longer warrant! a Group I (Especially Underpriced) classification at this time. However, reference to industry-wide capitalizatior ratios indicates that it is still undervalued relative to cur rent earnings and dividends. Its 3 to 5-year appreciatior potentiality of 106% is far superior to the average for al stocks. This issue merits the attention of risk-taking ac counts seeking good income and sizable appreciation potentiality. We classify the stock in Group II (Underpriced). BUSINESS: Technicolor controls most widely employed color film production process. Volume of English subsidiary about one-fifth that of domestic company. Labor costs absorb 37% of revenues, raw materials 39%. Color films have expanded their share of market TECHNICOLOR from 1% in 1939 to more than 58% in 1954. Since World War II, dividend payout has been about 84% of earnings. Director stockholdings are not reported but it is understood that Kalmus family has a considerable interest in the stock. Employees 2,311; stock holders 7,464. Pres. and Gen. Mgr., H. T. Kalmus, Sec, G. F. Lewis, Treas., L. G. Clark. Incorporated Delaware. Address: 15 Broad S.,t N. Y. 5, New York Stock traded: ASE REPORT: For 1955, actual earnings of $1.03 a share compared with our previous estimate of $1.05. Technicolor had not yet released its annual report for 1955 when this issue of the Survey went to press, but had officially published its share net in a preliminary announcement. This figure confirms the prediction in our November 7th Rating & Report that "the decline is likely to persist in the fourth quarter as well", after we had noted that "after an excellent first half, Technicolor stumbled in the third quartsr." The basic reason for the poor showing in the last half of 1955 was the slow-down in the release of new feature films by the Hollywood studios. As mentioned in our previous reviews, the Technicolor management has not been oblivious of the threat to the company's long-term position posed by the development of magnetic tape recording as a substitute for film. While this danger may never materialize, nevertheless the risk is there, and the company's management is wisely seeking to diversify its activities into lines allied to the present business. The most recent step announced in connection with the diversification program is the formation of a graphic arts division to enter the field of lithography. The new system is said to make color commercially feasible for runs of only a few hundred as well as many thousand printed copies. The diversification program is not expected to contribute importantly to 1956 earnings. However, the current pros pects for motion picture production are encouraging. In addition, there is an increasing proportion of color films, and Technicolor accounts for half of all the color films. All in all, we estimate that 1956 sales will climb to $39 million, resulting in earnings of $1.50 a share and dividends of $1.10 to $1.25 a share. Within the framework of our 1959-61 economic hypothesis, Technicolor is likely to establish a higher level of earnings. The continuing trend toward greater use of color in motion pictures, together with foreign expansion and the domestic diversification program, suggests average annual sales of at least $50 million, earnings of $2.00 a share and a dividend of $1.50. Capitalized at an earnings multiple of 9.0:1 to yield 8.3%, such earnings and dividends would command a price of 18 during the 3-year period, 50% above the current. ADVICE: Technicolor is currently classified in Group II (Underpriced) because it stands below its Rating and the Rating is rising. The estimated yield of 9.2 to 10.4% is extremely generous by comparison with the average return provided by all dividend-paying stocks under review, and reflects the considerable degree of risk inherent in a stock of this quality. Although its poor past records of growth and stability do not qualify the stock as a high-grade investment, risk accounts might consider it an attractive commitment at this level for generous income and large appreciation potentiality. Pag* 2S Film BULLETIN Ftbruary 20. 1956