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Outerwall Posts Better-Than-Expected Q1 Results; But Has Redbox Reached Its Peak?

Posted On: 5/30/2014

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TAGS: vending, coin-op news, Coinstar, Redbox, Outerwall, video rental kiosk, Outerwall quarterly report, Outerwall first quarter, Redbox forecast, Galen Smith

BELLEVUE, WA -- Earnings in the first quarter of Redbox parent Outerwall climbed 2.5%, bolstered by higher revenue from its video rental and Coinstar coin-counting kiosks, and exceeding Wall Street expectations. But Outerwall's guidance for the current quarter has analysts questioning whether the company has reached its peak as the market continues to shift from DVD rental toward on-demand and digital movie viewing, and with few rivals left from which to gain market share.

Outerwall reported 2014 first-quarter net income of $23.2 million, or 94¢ a share, up from $22.6 million, or 78¢ a share, a year earlier. Revenue rose 4.7% to $600.4 million. Analysts had expected a profit of 93¢ a share on revenue of $586.7 million.

Revenue from Redbox grew 1.5% to $515.7 million. Coinstar kiosk sales climbed 5.2% to $68.8 million.

However, lackluster earnings guidance for the second quarter suggests that Coinstar's Redbox business could post its first ever year-over-year revenue decline.

For the current quarter, Outerwall now expects to generate revenue between $546 million and $576 million, or $1.24 to $1.44 a share. That's far short of the $600.4 million it posted during the first quarter, and the low range of Outerwall's guidance is substantially less than the $554.2 million it posted in the year-ago quarter.

The second quarter guidance reflects the impact of weak box-office returns and fewer DVD titles on rentals and revenue per Redbox machine, according to Outerwall chief financial officer Galen Smith. He said the company expects rentals and revenue per kiosk will be up in the second half of the year, benefiting from the release of blockbuster movies on discs.

Outerwall had been testing new vending concepts, like the Rubi coffee and Crisp Market food kiosks and Star Studio interactive photobooths, but it shuttered all three in December. This has left some analysts and investors skeptical about the company's future growth opportunities in an age where DVD rentals are rapidly being supplanted by streaming services.

On the bright side, Outerwall's new ventures segment saw its revenue rise to $16.6 million in the first quarter from $293,000 in the previous year. The increase was mainly driven by the company's acquisition of ecoATM, a maker of kiosks where customers can trade in their used smartphones and tablets in return for cash. Following better than expected first-quarter results, Outerwall raised its full-year earnings guidance to between $6.68 and $7.18 a share on revenue of $2.378 to $2.488 billion. Previous guidance called for earnings of $5.16 to $5.76 per share and revenue of $2.358 to $2.498 million.