Jim Chanos was on CNBC this morning talking about one of his shorts: Coinstar.Coinstar is the owner of RedBox, the DVD rental kiosk company.
MarketFolly summarizes Chanos’ short argument:
One company in particular he’s shorting is Coinstar (CSTR). He points to DVD sales falling as VHS tapes once did. He highlights how cashflow margins are very high because you’re “the last guy standing” so everyone looking to rent DVD’s goes to them. But he asks what happens when DVD’s are replaced by streaming?
He cites Netflix (NFLX) as a company that’s been trying to transition to this. Ultimately, he sees streaming as the future and so thinks DVDs die, along with CSTR (assuming they don’t adapt).
Anyway, unfortunately for Chanos, the stock is surging after hours by 15.4% to a new high.
That’s because it just raised guidance across the board.
Here’s the announcement
Coinstar, Inc. (Nasdaq: CSTR) today announced certain preliminary financial results for the first quarter ended March 31, 2012, including results that exceeded previous guidance for the first quarter.
Coinstar’s preliminary results for the 2012 first quarter include:
2012 First Quarter
Preliminary Results Range
- Consolidated revenue
$567.0 million to $569.2 million
- Income from continuing operations
$53.0 million to $54.3 million
- Core adjusted EBITDA from continuing operations*
$127.9 million to $130.1 million
- Diluted earnings per share from continuing operations
$1.62 to $1.66
- Core diluted earnings per share from continuing operations*
$1.36 to $1.40
Coinstar noted that the increase in consolidated revenue was driven by stronger than anticipated consumer demand at Redbox throughout the quarter, particularly during February and March, reflecting, in part, better than anticipated consumer acceptance of the price increase for Redbox standard definition DVD rentals implemented in October 2011.
Higher than expected core adjusted EBITDA from continuing operations and core diluted EPS from continuing operations reflect the increased revenue and the positive impact of incremental turns on a number of titles, including Moneyball, Puss and Boots and 50/50, which received awards attention, as well as In Time, Abduction and Mr. Popper’s Penguins. Core diluted EPS from continuing operations also benefitted from lower than expected card processing fees for Redbox resulting from a lower mix of regulated debit card transactions, a special rate extension for the first quarter and the rollout of single billing during March, which collectively added between $0.12 and $0.14 to core diluted EPS from continuing operations for the quarter. The company realised lower than expected direct operating costs at Redbox due to increased efficiencies in obtaining select content through its workaround process. The company also recognised additional savings due to the timing of expenses as certain programs and new hires moved to later in the year. Lower operating expenses added between $0.07 and $0.09 to core diluted EPS from continuing operations for the quarter.
Coinstar also raised guidance for the 2012 full year to reflect several factors, primarily the strong first quarter preliminary results and additional learning on the impact of the price increase, as well as the extension of the Universal content licence agreement. Guidance also includes card processing fees based on the maximum rate as Coinstar continues to work on attaining a long-term rate, the shift of costs related to key programs and hiring from the first quarter to the rest of 2012, a higher income tax rate of 40% for the core business, and increased share-based payments expense reflective of the higher stock price at the end of the quarter.
For the 2012 full year, Coinstar management now expects:
- Consolidated revenue between $2.155 billion and $2.280 billion;
- Core adjusted EBITDA from continuing operations* between $465.0 million and $495.0 million; and
- Core diluted EPS* from continuing operations between $4.40 and $4.80 on a fully diluted basis.
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