February 9, 2010 / 1:06 AM / 10 years ago

UPDATE 4-Electronic Arts outlook disappoints, shares decline

* Q4 and FY11 EPS and revenue forecasts lag Street views

* Shares fall 8 pct

* CEO says guidance conservative (Adds CEO and analysts’ comments, details from call; updates share price)

By Gabriel Madway

SAN FRANCISCO, Feb 8 (Reuters) - Electronic Arts Inc ERTS.O warned that fiscal 2011 earnings would miss Wall Street expectations as it grapples with a lack of blockbuster new games after a succession of missed targets and restructurings.

Shares of the U.S. video game publisher fell 8 percent after its current-quarter forecast also missed analysts’ expectations on Monday, a month after it had updated its current 2010, fiscal year outlook.

“Four weeks ago I don’t understand why they didn’t give a number they could hit,” said Wedbush Morgan analyst Michael Pachter.

Investors have been grumbling over EA’s failure to meet its own guidance, its underperforming shares and a turnaround plan that even the company concedes is taking longer than expected.

EA forecast profit, excluding items, of 2 cents to 6 cents a share for the March quarter, on revenue of $800 million to $850 million. Analysts, on average, had forecast profit of 13 cents a share on revenue of $850 million, according to Thomson Reuters I/B/E/S.

EA blamed the lowered guidance on its catalog titles, the European market and the adverse impact of foreign exchange.

For the fiscal year ending March 2011, EA forecast earnings of 50 cents to 70 cents a share on revenue of $3.65 billion to $3.9 billion. Both lagged Wall Street’s expectations for 74 cents and $4.07 billion.

Although analysts say the company has a strong game slate for the first half of the year, EA still lacks mega-selling titles like rival Activision Blizzard Inc’s (ATVI.O) “Call Of Duty: Modern Warfare 2.”

“‘FIFA’ is a great game and ‘Madden’ is still a big hit but they need other breakout titles,” said MKM Partners analyst Eric Handler.

The company warned that industrywide sales of packaged goods software would slip 3 percent in 2010. However, on a conference call with analysts, Chief Executive John Riccitiello conceded that EA’s forecast for next year was conservative.

“There’s reason to be optimistic. We have just chosen not to because we think it’s a better planning assumption,” Riccitiello said.

“What’s been true about EA for a long time is they’re terrible at forecasting,” Pachter of Wedbush Morgan noted. “This time I think they’re taking no chances.”

Early in January, after EA cut its fiscal 2010 earnings and revenue estimates, analysts said Riccitiello’s job was on the line, citing a failure to appease investors clamoring for higher margins and share price performance. [ID:nN12203213]

A DIFFICULT YEAR

EA had a tough 2009, slashing jobs and narrowing its game portfolio amid an industrywide slump in video game sales and a continuing transition to digital and casual games. The publisher will release 36 titles next fiscal year, down from 54 in the current year.

EA’s well-regarded pipeline for the March quarter included “Mass Effect 2,” “Army of Two” and “Dante’s Inferno.”

Shares of the company gained about 11 percent in calendar 2009, lagging by far the 29 percent that Activision chalked up over the same period.

Video game industry sales in the United States — the largest market — fell 8 percent in 2009 to $19.7 billion, and game software sales slid 11 percent. The economic downturn most impacted the industry’s casual fans, with the music category particularly hard-hit.

EA reported on Monday a net loss of $82 million, or 25 cents a share, in the fiscal third quarter ended Dec. 31, versus a loss of $641 million, or $2 a share, in the year-ago period.

Excluding items, EA earned 33 cents a share, versus the average analyst estimate of 31 cents a share.

Revenue fell 25 percent to $1.2 billion, while non-GAAP revenue came in at $1.35 billion. Wall Street was estimating $1.34 billion.

Shares of Redwood City, California-based EA closed at $17.49 on Nasdaq and fell 8 percent to $16.03 in extended trading. (Reporting by Gabriel Madway; Editing by Richard Chang)

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