Earnings

Electronic Arts (NASDAQ: ERTS) reports Q3 EPS of $0.33, 2 cents better than the analyst estimate of $0.31. Revenue for the quarter was $1.24 billion, which compares to the estimate of $1.34 billion. Shares are down 8.63% today.

Highlights From ERTS's Q3 Conference Call:

• Sees Q1 EPS between $0.02-$0.06 vs. $0.13 consensus. Sees Q1 sales between $800-$850 million vs. $851 million consensus. Sees FY10 EPS between $0.50-$0.70 vs. $0.74 consensus. Sees FY10 revenues between $3.65-$3.90 billion vs. $4.1 billion consensus.
  
• (CEO) In calendar '09, we shipped 19 titles with a Metacritic rating of 80 or better. We're very proud that both Madden and FIFA remain at the top of the charts again in calendar '09.
  
• Our investment in digital revenue streams is meeting and in many cases exceeding our own high expectations.
  
• We achieved a record 152 million in quarterly non-GAAP net revenue in Q3. This brings us to 30% growth in digital revenue fiscal year to date. Our overall digital business is now at scale, over $0.5 billion annually, growing very rapidly, and profitable.
  
• In the past two years, we have dramatically lowered head count despite acquisitions and the addition of multiple digital business models. Our operating costs are expected to be down in FY '10 versus FY '09 and down even further in FY '11.
  
• (CFO) We remain cautious in the packaged goods market that remains soft overall and hit-driven.
  
• Our guidance for F '11 is framed by three major considerations. While we see reasons for optimism for the packaged goods sector, we believe using a minus 3% rate for the sector is a better planning assumption. We've made the call to deemphasize low margin distribution in our FY '11 guidance. This reduces top-line revenue but has limited effect on earnings.
  
• Lastly, we note we've built a plan around an expense base that is approximately 100 million lower in F '11 than F '10. And like-on-like, adjusting for foreign exchange, bonus, and Playfish run rate, is approximately $200 million lower on a non-GAAP basis.
  
• By driving down expenses aggressively, we were able to guide to non-GAAP EPS growth of 40% at the midpoint of our guidance range while maintaining a realistic stance of the packaged goods sector.
  
• For Western markets overall, the packaged goods sector was down 9% in the quarter vs. expectations of a flat quarter. Both North America and Europe were down 9%. Europe's biggest market, the UK, was down 16% year-over-year.
  
• In the quarter, Sony PS3 hardware sales increased 48% year over year. Wii hardware sales decreased 2% year over year, while Xbox 360 hardware sales declined 21% year-over-year.
  
• Hardware sales responded to price promotions, particularly the Wii in North America, with Wal-Mart promoting the Wii at an effective $149 price point.
  
• In North America, concentration of sales in the top titles continued, with the top 20 titles in calendar Q4 '09 representing 48% share in dollars, versus 37% share in calendar Q4 '06.
  
• For the global market including Asia, we estimate that total packaged goods represented approximately 60% of the overall software market for calendar 2009, while total digital, consisting of mobile and online, was approximately 40%. While packaged goods were down 9% in calendar '09, we estimate that total digital increased by approximately 28%, growing the combination of packaged goods plus digital by 3% year over year.
  
• We also experienced product mix shift to lower-margin distribution titles in the December quarter in North America.
  
• On a GAAP basis, net revenue was 1.243 billion. At constant currency rates, net revenue decreased 435 million or 25% year over year.
  
• Madden NFL 10 sold through over 2.3 million copies at retail in the quarter. In North America, Madden NFL 10 charted number four overall in calendar '09.
  
• Year-over-year, Madden sales on all platforms combined continued to close the gap in North America from minus 17% through Q2 to minus 6% through the end of Q3.
  
• Our core platforms, PS3 and Xbox 360, are up 15% on a cumulative basis. Dragon Age Origins was a key frontline title for the quarter. It sold in 2.7 million copies worldwide on the PC, PS3, and Xbox 360 platforms and received a Metacritic rating of 88 across all platforms.
  
• In our distribution business, Left for Dead 2, in partnership with Valve, exceeded our expectations with 2.9 million copies sold in worldwide on the PC and Xbox 360 during the holiday quarter, and it charted in the top 10 in North America, according to NPD.
  
• In our digital business, FIFA 10, with its innovative Ultimate Team mode, Dragon Age premium digital content, Battlefield 1943, and The Sims Store all performed well in the quarter.
  
• POGO continues to be the number one online game site worldwide in terms of user engagement. We started recognizing Playfish revenue in the fiscal third quarter.
  
• During Q3, we had two of the top 10 Facebook games. We continue to be the number one mobile games provider in Western markets. We had seven of the top 11 games in December for the iPhone (Nasdaq: AAPL), and four of the top five selling games for 2009.
  
• EA had seven of the top 10 games on Verizon during the quarter and achieved over 50% of the top 10 games on AT&T, Sprint, and T-Mobile. We had 1.9 million total subscribers in the quarter.
  
• We achieved another record quarter with 152 million in non-GAAP digital net revenue, up 30% year over year. Mobile revenue was 57 million, up 14% year over year.
  
• non-GAAP gross profit margin was 51.6% versus 47.1% a year ago. This is up from the prior year due to a greater mix of published titles.
  
• Non-GAAP operating expenses were 540 million, down 47 million or 8% year over year.
  
• Total bonus accrued as of the end of Q3 is 54 million compared to 43 million through Q3 last year.
  
• Turning to the balance sheet, cash and short-term investments were approximately 1.466 billion at quarter end, down approximately 159 million from last quarter primarily due to the acquisition of Playfish. Marketable equity securities were 318 million, down 69 million from last quarter primarily due to the sale of The9 shares and a decline in the value of our Ubisoft investment. At quarter end, we had 179 million of net unrealized gains on investments.
  
  Gross accounts receivable were 762 million, down 335 million from last year or down 31%. DSOs were 51 days versus 57 last year. Reserves against outstanding receivables totaled 267 million, down 36 million from a year ago.
  
  Reserve levels were 8% of trailing nine-month non-GAAP revenue versus 9% a year ago. Inventory was 144 million, down 151 million from a year ago.
  
  Ending deferred net revenue from packaged goods and digital content was 895 million, up 383 million from a year ago due to the additional deferral for all console and PC online-enabled games.
  
• Restructuring update, our restructuring plan is on track. During Q3, we recorded 96 million of restructuring expense for our fiscal '10 restructuring plan of the estimated total amount of 150 to 155 million. We closed five locations and are approximately two-thirds complete with position reductions at the end of January 2010.
  
• Y '11 outlook and guidance, as we go through our fiscal '11 guidance, we will refer to three principal lines of business; first, packaged goods. This includes higher margin EA-owned titles and co-published titles. PC titles like The Sims 3 can yield up to a 90% gross profit margin. And owned console products typically yield 60% to 70% gross profit margins.
  
• For fiscal '11, we are making the following assumptions. Sector, our guidance is based on an assumption that total worldwide packaged goods will be down 3% in calendar year 2010. We are projecting continued robust growth in digital of approximately 26%, which is expected to grow the composite sector by 8% for calendar 2010.
  
• While there is a possibility of software catalysts, including: a) a strong industry title slate; b) growth coming from the introduction of Microsoft and Sony motion controllers; and c) growth coming from potential console price reductions in calendar '10, we are not counting on packaged goods software growth in our fiscal '11 plan.
  
• Total EA we expect to end fiscal '10 with a total of approximately 8,120 head count. We expect to end fiscal '11 with roughly the same total head count. Total low-cost location head count is increasing from approximately 21%, or 1,800 pre-restructuring at the end of Q2, to 2,100, or 26%, at the end of fiscal '11.
  
• Packaged goods, our fiscal '11 plan currently includes a total of 36 titles for the fiscal year versus 54 in fiscal '10.
  
• Our total variable marketing advertising in fiscal '11 is an estimated 475 to 495 million, which is comparable to the total amount for fiscal '10. On a non-GAAP basis, we expect fiscal '11 revenue from EA published packaged goods titles to be between 2.75 billion to 3 billion, which reflects flat share at the middle of the range.
  
• We are planning a number of digital launches in fiscal '11, including Tiger Woods Online going from beta to full launch, FIFA Online, and Need for Speed: World. We expect to launch a similar number of mobile and social network games compared to fiscal '10.
  
• Q1 fiscal '11 guidance, revenue; on a GAAP basis, we expect revenue of 710 million to 750 million
  
• Fiscal '11 full-year guidance, revenue; on a GAAP basis, we expect revenue of 3.45 to 3.7 billion. (Consensus is $4.07B)
  
• (COO) For Q1 - This year Skate 3 will include a co-op skateboarding experience and online features that allow players to form teams and compete against rival crews. Also in Q1 is Tiger Woods PGA TOUR 11. I should also mention that our web-based Tiger Woods PGA TOUR online game recently went into open beta and offers a terrific online experience. And finally, Need for Speed: World is a web-based, open-world game with licensed cars, extensive game modes, and a massive online environment. This game will launch in open beta in the quarter.
  
• In Q2, we are laying down some big bets with blockbusters from EA SPORTS and the EA Games label. I'll start with the North American flagships: NCAA Football 11 and Madden NFL 11. And of course, the world's most beautiful game, FIFA 11; we will also be bringing FIFA online to the Western world, a totally web-based experience that has been extremely popular in Asian markets. And finally from EA SPORTS, the franchise that wins so much recognition from critics, NHL 11.
  
• Now onto Q3, our holiday quarter; EA SPORTS Active for the Wii was one of EA's most successful new franchises in 2009. We'll be back in 2010, but this time across multiple platforms. Also from EA SPORTS in Q3, NBA LIVE 11.
  
• (CEO) Our packaged goods business is performing. We have gained market share this fiscal year as a result of great quality and improved marketing. In fiscal '11, we believe titles like Medal of Honor, Crysis 2, Dead Space, The Sims 3 on console, and others have breakout potential.
  
• We have a profitable, scaled digital business that recently hit the $0.5 billion threshold. Our digital business is growing at 30% and is projected to break through $0.75 billion in fiscal '11. We have programs in place that should take this to well beyond $1 billion in the coming two fiscal years.
  
• (Q&A) A question on the overall industry weakness and some of the numbers you gave. With tie ratios down, do you think this is really a cyclical issue, or do you think gamers are starting to become different in terms of their daily behaviors? Are they more distracted by social apps, games, mobile apps, the iPhone, iPod, iPad, all the other devices out there, and just having generally less time for games and it's potentially more of a secular issue longer term? Thanks.(A) First off, we do have data and research on the amount of time consumers are spending with games. And increasingly and importantly, they're spending more time with their console than they ever had before. So I don't think it's a consumer behavior issue if it's anything at all. And I do think it's fair to characterize 2009 as being a consequence of relatively less powerful slate industry-wide compared to 2008. I think a second factor - and I've pointed to this before - in 2009 was a lack of aggressive pricing on first-party, if you will, a little bit too late with their price cuts. And frankly, and broadly, the economic circumstance and, if you will, the recession that hit in most Western markets - or all Western markets. Net-net, time is up; the market was soft for the reasons I just identified. As we look to 2010, there's nothing to suggest that consumers aren't going tocontinue to increase the use of their console. Relative to others that have provided guidance for the year, we've decided to be a little bit more conservative. And, frankly, that's a function of the fact that we haven't seen enough data to suggest that the purchase behaviors are there yet in spades. What makes us feel good about it, though, is there's a strong slate. We've got strong belief in the new motion controllers. So there's reason to be optimistic. We've just chosen not to, because we think it's a better planning assumption to be more conservative here.
  
• Can you provide some additional insight regarding your pricing assumptions for fiscal 2011? Should we expect to see a greater number of titles at sub-59.99 price points? And does your current guidance assume accelerated price degradation versus prior years, or do you expect the pricing environment to remain relatively consistent? And then also, you gave a pretty detailed title breakdown for the year. Could you maybe highlight which of these titles is for Natal and which is for Arc? Am I right in thinking you won't release a new Rock Band title in fiscal '11? Thanks.(A)A couple, three questions there. I think we'll probably split this one up. In terms of pricing, I would tell you that I really can't give you any insights into our forward pricing assumptions. As we've said many times on these calls, that's between us and our retailers. And there's a variety of regulatory reasons why we're not able to do that. If you did want to pick up an interesting analysis, I would encourage you to look at data from NPD. For example, say 2003 peak a lot cycle to 2009 the current, the most recent year,which is a six-year split. I think you'll see, when you look at top 10, top 20, top 30, about a 10 to $12 pickup in pricing, suggestive of the fact that the top titles sold very well at top prices. And at least on a historic basis, there's very little to suggest that hasn't been the case, nor that it won't continue to be the case. (A)With respect to the motion-control games, Natal on Xbox and the Sony motion controller, we will be supporting both of those platforms at launch. We don't have any titles to announce right now on those. But we will be supporting those titles, and we are hopeful on those.The last question was on Rock Band. We have a - our deal with Viacom and Harmonix continues through FY '11. At that time, as you can see from our modeling, we have not included a lot of revenue for distribution next year, but we continue to have talks with them and hope that maybe there's an opportunity to continue the relationship beyond that.(A) This is John. Just clarifying, what John meant was our relationship is defined through FY '10 for new frontline releases. We've got a strong relationship, and we haven't incorporated it and we don't presently have an agreement for FY '11 new titles.

The Coca-Cola Company (NYSE: KO) said on Tuesday that profit increased 55 percent on the back of strong overseas sales offset the weaker North American market in the most recent quarter.

The world's largest beverage maker reported fourth-quarter earnings of $1.54 billion, or 66 cents per share excluding special items, a penny lower than the market estimate of 67 cents per share. In the same quarter last year Coke earned $995 million, or 43 cents per share.

Revenue for the company increased by 5 percent to $7.51 billion in the final three months of 2009, from $7.13 billion in the year-ago quarter. Analysts were expecting revenue of $7.21 billion for the quarter.

"We ended this year on a high note, delivering global volume and value share gains, comparable currency neutral revenue growth, improved productivity and increased cash flows," said Muhtar Kent, Chairman and Chief Executive Officer, The Coca-Cola Company.

The strong growth overseas was led by the emerging market starting in China with a 29 percent jump for unit case volume, followed by India growing by 20 percent and Brazil up 8 percent. Developed markets also showed strong growth overseas led by France up 12 percent in unit case volume.

The strong performance overseas helped to make up for the 1 percent drop for unit case volume in North America. The company's Coca-Cola Zero product did see double digit case volume growth in the quarter.

For the full year the company's profit increased 17 percent to $6.82 billion in 2009.

Shares for Coca-Cola are trading higher by 95 cents to $53.60 in early market movement on Tuesday.

Versar (NYSE: VSR) reports Q2 loss of $0.03, compared to a gain of $0.06 in the same quarter last year. Revenue for the quarter was $24.4 million, versus $27.97 million in Q208.

Martin Marietta Materials Inc. (NYSE: MLM) reports Q4 loss of $0.07, which may not compare to the analyst estimate of $0.33. Revenue for the quarter was $327.8 million, which compares to the estimate of $383.01 million.

RG Barry Corp (NYSE: DFZ) reports Q2 EPS of $0.74, 9 cents better than the analyst estimate of $0.65. Sales were $55.57 million for the quarter, compared to $48.85 million for the same period last year.