Starz Scares Up Profit Despite Bigger Bets on Orignal Series

By Tim

The stars of Ash vs. Evil Dead, which premiered on Halloween. Credit: Starz.

Shares of Starz are down just over 6% since last Thursday's third-quarter report, in which the upstart entertainment studio reported slowing growth in key areas. Here's a closer look at the company's Q3 performance:

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Metric Q3 2015 Actuals Q3 2014 Actuals YOY Growth
Revenue $404.1 million $408.2 million (1%)
Operating income $101.8 million $97.3 million 4.6%
Adjusted EPS $0.56 $0.51 9.8%
Cash from operations (trailing 9 months) $88.5 million $107.2 million (17.4%)

Sources: S&P Capital IQand Starz press release.

Commenting on the results, CEO Chris Albrecht said in a press release:

What went right:To hear Albrecht tell it, the story isn't what Starz earned in the third quarter, but that the studio is doing to develop a wide portfolio of original series on a budget while retaining global distribution rights for its funded programming. Ash vs. Evil Dead is a good example. The horror comedy premiered in seven international territories and the U.S. on Halloween. Operating income still improved 4.6% year over year despite the additional investment. Lower home video cost of sales (down 51.3%) and targeted cuts in selling, general, and administrative expenses (down 8.6%) helped push Starz into the black for the quarter.

What went wrong:Cash from operations declined sharply, but for all the right reasons. Programming rights payments inched up to $350.2 million from $348 million for the first nine months of 2014. Investment in film and TV programming jumped 6.6% over the same period.So long as Starz is keeping hold of rights to distribute its funded shows when and where it pleases, and on favorable terms -- which is happening -- profits and cash flow should follow.

What's next:Keep an eye on the cash flow statement and compare growth in "investments in films and television programs" to growth in revenue and operating income. When the latter begins to outpace the former, we'll know that Starz's strategy is working.

The article Starz Scares Up Profit Despite Bigger Bets on Orignal Series originally appeared on

Tim Beyers still says Brice Campbell was at his best inBurn Notice. He's also a member of theMotley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission but didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim'sweb homeandportfolio holdingsor connect with him onGoogle+,Tumblr, or Twitter, where he goes by@milehighfool.The Motley Fool recommends Starz. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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