THQ Announces Reduced Profit, But Exceeded Guidance

Game publisher and developer THQ has announced fiscal 2006 third quarter results, showing a rare relative bright spot in recent major game company earnings, as it exceeded previous company guidance, with sales of $357.8 million and a profit of $47.6 million, Even though the company's guidance of $320 million in sales was exceeded, profits and revenues were down the same period a year ago, when THQ reported net sales of $400.3 million and profit of $62.9 million, on strong sales of The Incredibles and the SpongeBob Squarepants Movie licensed games. Although less affected than other firms such as Electronic Arts, the current console transition also clearly affected the company in terms of reduced revenues and profits. Nonetheless, during the most recent quarter, THQ again scored with mass-market licensed titles, shipping more than 2.5 million units of wrestling game WWE SmackDown vs. Raw, and more than one million units each of Bratz Rock Angelz, The Incredibles: Rise of the Underminer, and SpongeBob SquarePants: Lights Camera Pants!, "Our strategy to target the mass-market consumer this holiday succeeded," said Brian Farrell, THQ president and CEO. "In 2005, we gained market share in each of our major markets, especially among the core gamer audience, driving our ranking as the #3 independent video game publisher worldwide, excluding Japan. We continued to diversify our product portfolio, grow our studio system and expand our global sales network, which are key drivers for THQ's long-term profitable growth." Looking forward, Farrell referenced the company's intention to diversify and make more products that appeal to what he called the "avid gamer", referencing more hardcore-gamer specific titles such as Saints Row for Xbox 360 and Company of Heroes and Titan Quest for PC, also pointing out that THQ's games themed around forthcoming Disney/Pixar film Cars are likely to be big sellers for the company in 2006. The company also announced that Doug Clemmer, former head of THQ's Valusoft budget game division, has been named head of THQ Wireless, as long-time head Tim Walsh has now departed. The mobile division of THQ accounted for 2.5% of the company's revenue in the quarter. THQ's guidance calls for $790 million in sales for the entire fiscal year, and income of approximately $0.67 per diluted share. Despite the continuing console transition, the company is still expecting sales for the fiscal year ending March 31, 2007 of $900 million to $950 million, with $0.90 to $1.00 per diluted share in profit. Overall, the company's results went down reasonably well with Wall Street, and THQ's shares were up around 30 cents to $26.50 in mid-market trading.