NEW YORK (Reuters) - Video game publisher Electronic Arts Inc’s announced a surprise $600 million share buyback plan and raised the midpoint of its earnings forecast for 2011, sending its shares up more than 8 percent on Tuesday.
Earnings per share is now expected to be 60 cents to 70 cents, compared to analysts’ average estimates of 63 cents, according to Thomson-Reuters I/B/E/S. Its previous estimate was for earnings of 50 cents to 70 cents.
The company, known for franchises like “FIFA” and “Madden: NFL,” has shown its financial health has improved. The company, which has frustrated investors by slashing its outlook in previous quarters, has cut costs and headcount, slimmed down its game portfolio, and began issuing more cautious forecasts.
On Tuesday, the company said it would buy back $600 million in shares over 18 months.
“The reason we are doing the buyback is that our cash flow generation is improving, which is a demonstration of our belief in our strategy, specifically our digital strategy as we build our digital revenue,” Chief Financial Officer Eric Brown said in an interview.
Digital revenue increased 39 percent to $211 million. EA also said it is on track to generate $750 million in digital revenue for the full year.
Once the dominant video game publisher, EA is in the midst of turnaround efforts. After a difficult 2009, the company cut jobs and pared its game portfolio to focus on fewer, bigger titles.
One investor viewed the share buyback as a sign of confidence that the company sees better days with its pipeline of games.
“The buyback is very encouraging about EA’s game pipeline and for what they see for new systems like the Kinect and for the potential of the digital business,” said Larry Haverty, associate portfolio manager of Gabelli Global Multimedia Trust, which owns EA shares.
The company posted a net loss of $322 million, or 97 cents per share, compared with a loss of $82 million, or 25 cents per share a year earlier.
Excluding for various costs related to taxes, acquisitions
and restructuring charges, EA reported earnings per share of 59 cents, compared with analysts’ average estimates of 57 cents, according to Thomson-Reuters I/B/E/S.
“An EPS of 59 cents was much better than expected and put on top of that a share buyback, which is finally going to put their cash to work, that’s going to be well received.” said MKM Partners analyst Eric Handler.
On an adjusted basis, EA’s revenue increased 4.8 percent to $1.410 billion from $1.346 billion a year earlier. Analysts on average were expecting revenue of $1.43 billion.
Shares were up 9 percent at $17.03 in after-hours trade after closing at $15.62 on the Nasdaq.
Reporting by Liana B. Baker; Editing by Bernard Orr