Why Cinemark crashed today | The colorful fool

What happened

Shares in the cinema chain Cinemark stocks (CNK -13.44%) down 14.3% at 2:11pm ET today.

Shares were lower after last night’s earnings report, despite the company beating sales expectations. It may have something to do with management’s comment that the current quarter could be tougher thanks to a plethora of new releases in August and September.

so what

Cinemark actually had a relatively strong second quarter, with revenue rising 152.6% to $744.1 million, beating analyst estimates as the cinema chain made a strong recovery from the pandemic. Management also noted that the company has outperformed the industry recovery by 3 percentage points and by 4 percentage points internationally.

The bottom line fell short of analysts’ expectations as the company posted a loss of $0.61 per share. However, that was largely the result of a $92.3 million non-cash impairment charge. Excluding this charge, operating loss would have increased to $73.7 million in operating profit from $18.6 million in the second quarter.

But as with so many earnings releases, the stock reaction wasn’t so much based on past numbers as it was on guidance. Speaking about the earnings release, CEO Sean Gamble pointed out that August and September would be more difficult as there were fewer major releases ahead of the busier fall and holiday periods. The last quarter benefited from several high-quality blockbusters such as Top Gun: Maverick. With no such blockbuster in sight for late summer, investors are becoming increasingly nervous given the industry’s sluggish recovery.

What now

Cinemark trades with a market cap of $2 billion and an enterprise value of approximately $3.8 billion. Before the pandemic in fiscal 2019, the company had net income of about $191 million, but those earnings numbers didn’t grow.

Though theaters haven’t fully recovered yet, investors seem to have expected things to “get back to normal” for the most part. As we have seen, the post-pandemic economy is still vulnerable to inflationary shocks, new COVID-19 variants and other issues such as monkeypox. Oh, and the danger of streaming still looms over the theater industry as it did before the pandemic.

As such, investors seem rightfully cautious these days as the bumpy reality collides with expectations of a full theatrical recovery.

Billy Duberstein has no position in any of the stocks mentioned. Its clients may own stocks of the named companies. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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