EA results surpass Street view, shares seesaw

SAN FRANCISCO (Reuters) - Electronic Arts Inc (ERTS.O) reported better-than-expected results on strong sales of "The Sims 3" video game and cost-cutting, but concerns about the current quarter helped pare the stock's gains in extended trading on Tuesday.

Its stock reversed course after an initial rise of around 4 percent fueled by the company's fiscal first-quarter results and the affirmation of its fiscal 2010 outlook despite recent signs of weakness in the already struggling games sector.

But Chief Executive John Riccitiello warned analysts on a conference call that the industry remained weak and retailers continue to be cautious about ordering.

Analysts said downbeat comments around the performance of "NCAA Football 10" -- which launched last month -- and the company's September quarter outlook for gross margin may have spooked investors. Electronic Arts expects gross margin on an adjusted basis to fall from a year ago.

And because the company stuck to its forecasts despite a strong quarter, some analysts said that raised fears about a weaker year ahead.

"They beat the quarter but reiterated the year, so that beat needed to come from somewhere, and it's basically driving down expectations for the current quarter," said Pacific Crest Securities analyst Evan Wilson.

The video game industry has struggled lately as the economic downturn continued to pinch consumer spending and take its toll on sales. June U.S. video game sales registered their biggest drop since 2000, according to research group NPD.

But MKM Partners analyst Eric Handler said EA's quarter was good on balance and that the company was merely echoing the careful sentiment that is being heard around the industry.

"They're taking a cautious approach to the year, for the most part I think that's what investors were expecting."

STRONGER QUARTER

Electronic Arts, which said it was the No. 1 video game publisher in Europe and North America in the June quarter, this year announced plans to cut about 11 percent of its workforce and close facilities, as it winnowed its product portfolio down to focus on fewer titles.

The company's restructuring effort is largely complete, Chief Financial Officer Eric Brown said in an interview.

Electronic Arts posted a net loss of $234 million, or 72 cents a share, in its fiscal first quarter ended June 30, versus a net loss of $95 million, or 30 cents a share, last year.

Excluding items, the company reported a loss of 2 cents a share, better than the average analyst estimate of a loss of 12 cents a share, according to Reuters Estimates.

Revenue fell to $644 million, but non-GAAP revenue rose 34 percent to $816 million, ahead of Wall Street's forecast for $735.7 million.

Electronic Arts sold 3.7 million copies of "The Sims 3," and 1.8 million copies of "EA Sports Active," its best-selling title ever for Nintendo's (7974.OS) Wii, the most popular home console.

The company doubled its revenue on Wii titles in the quarter.

Electronic Arts affirmed its fiscal 2010 forecast for earnings excluding items of $1 a share on non-GAAP revenue of $4.3 billion.

Shares of Redwood City, California-based Electronic Arts are up about 35 percent this year. Its stock closed at $21.89 on the Nasdaq and rose to $21.96 in extended trading.

(Editing by Edwin Chan, Robert MacMillan, Phil Berlowitz)