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Coinstar's Q4 Profit Rises, Q1 Estimates Downbeat

Posted On: 2/8/2011

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Coinstar Inc., Coinstar fourth-quarter sales, Redbox, DVD vending machine, movie rentals, coin counting machines, vending, vending machine, vending machine business, automated retailing, self-service kiosk, Blu-ray, Paul Davis, Time Warner Inc., video game rental, Netflix

BELLEVUE, WA -- Coinstar Inc. reported that profit tripled in the fourth quarter of 2010, in line with targets it lowered last month to account for disappointing sales from its Redbox DVD-rental kiosks. The company's guidance for the first quarter fell short of Wall Street forecasts.

Earnings for the three months ended Dec. 31 rose to $11.7 million, or 35¢ a share, up from $3.4 million, or 11¢ per share, a year earlier. Sales rose 31% to $390.8 million, or 68¢ a share, from $298.3 million, or 37¢ per share in the year-ago quarter.

For the full year, Coinstar earned $51 million, or $1.57 a share, down from $53.6 million, or $1.76 a share, the previous year. Revenue rose to $1.44 billion from $1.03 billion.

Coinstar, which still operates self-service coin-counting machines, issued a preliminary fourth-quarter report last month, lowering its revenue projection to $391 million, or 65¢ to 69¢ a share, a 31% revenue jump year over year. This compared with previous guidance in the range of $415 million to $440 million, or 79¢ to 85¢ a share. Officials attributed the adjustment to the unexpected impact a recently inked deal with several Hollywood movie studios to delay Redbox's access to new DVD releases by 28 days would have on holiday revenue.

Coinstar's expenses reportedly jumped to $347.6 million from $268.6 million during the fourth quarter, partly due to excess inventory purchases. The company said it had removed older inventory ahead of the holiday season to make room for newer titles, but demand wasn't strong enough to offset the cost.

"We have taken definitive steps to correct the issues we encountered with our Redbox business in the fourth quarter and will be tracking progress closely," said Coinstar chief executive Paul Davis. The Coinstar chief did not elaborate on how Coinstar might overcome the challenge posed by movie studios not distributing movies through its kiosks immediately after their DVD release.

Signaling further challenges for Coinstar, Time Warner Inc. recently announced that it plans to launch on-demand videos in the coming months, which will allow viewers to rent and watch movies from their homes just 60 days after they are released in theaters. The studio also said that it is reevaluating its distribution agreements with Redbox and mail-order giant Netflix Inc., suggesting it may further extend their existing 28-day window to access its movies and raise its fees.

Coinstar was upbeat about its trial of videogame rentals at Redbox kiosks, reporting that it recently top a million automated rentals since it began the test in 2009. Officials said they will decide over the next several months whether to roll out videogame rentals nationwide to all 30,000 kiosks from the 5,000 or so kiosks with the service today.

For the first quarter, Coinstar said it expects earnings of 15¢ to 25¢ a share on revenue between $400 million and $420 million. The company backed its previous guidance for 2011 of adjusted earnings between $1.7 billion to $1.85 billion, or $2.60 to $3.10 per share.

Analysts had forecast higher first-quarter earnings of 57¢ on $405.8 million in revenue, and full-year earnings of $2.85 a share on $1.78 billion in revenue.