Bloomberg News

THQ Third-Quarter Profit Tops Goal on Sales of `Cars'

February 02, 2007

THQ Inc. (THQI:US), maker of ``Cars'' video games, said third-quarter profit rose 32 percent as sales were boosted by games for Nintendo Co.'s Wii and DS players.

Profit was $62.1 million, or 91 cents a share, for the period ended Dec. 31, up from $46.9 million, or 71 cents, a year earlier, the Agoura Hills, California company said in a statement. Sales rose 33 percent to $475.7 million.

THQ, which announced preliminary results on Jan. 11, benefited from the popularity of Nintendo Co.'s Wii and DS players. THQ games include ``Cars,'' based on the Walt Disney Co. film, and ``Saints Row.'' Chief Executive Officer Brian Farrell said the company is working on a ``Cars'' sequel.

``They had very strong numbers over the holiday because of their improved lineup,'' Colin Sebastian, an analyst with Lazard Capital Markets in New York, said in an interview. He rates the shares ``buy'' and doesn't own them.

Shares of THQ rose 56 cents, or 1.8 percent, to $30.95 at 4 p.m. New York time in Nasdaq Stock Market composite trading (THQI:US). They have gained 18 percent in the past year.

THQ said in its preliminary report that it earned about 91 cents a share on sales of $475 million.

Consoles Drive Sales

About half of THQ's fiscal 2008 revenue will come from sales (THQI:US) of games for so-called next-generation consoles, Microsoft Corp.'s Xbox 360, introduced last year, and Sony Corp.'s PlayStation 3 and Nintendo Co.'s Wii, both introduced in November, the company said.

THQ is increasing development of titles for the Wii and will release 11 new games in the next year. The console outsold PlayStation 3 during the holiday period 1.1 million units to 687,300, according to researcher NPD Group, based in Port Washington, New York.

``We believed it was going to be strong, but it's stronger than we thought,'' Farrell said in an interview.

Wedbush Morgan Securities analyst Michael Pachter raised his rating on THQ shares to ``strong buy'' from ``buy'' after results were released. The Los Angeles-based analyst, who has a $42 price target on the stock, cited the company's lineup of games for the Wii.

THQ, which has sold 7 million copies of ``Cars,'' is working with Disney to develop a sequel for the 2007 holiday season, Farrell said on a conference call.


Excluding costs of about 9 cents a share in non-cash stock- based compensation, the company said profit was $1 a share. On that basis, the company beat its own forecast and analysts' average estimate (THQI:US) of 97 cents a share compiled by Bloomberg. Sebastian also estimated 97 cents a share.

THQ forecast fiscal fourth-quarter earnings of 14 cents, excluding 5 cents a share for stock-option compensation expenses (THQI:US), on sales of $146 million, both projections below average estimates by Bloomberg. For the full year, THQ predicted earnings of $1.23 excluding a 23 cent stock option expense and $1 billion in sales.

For fiscal 2008, THQ forecast profit of $1.34 to $1.44 a share, excluding 23 cents in non-cash compensation costs, on sales of $1.12 billion to $1.15 billion.

``They've got tougher comps because they've had such a strong '07,'' said Sebastian.

To contact the reporters on this story: Michael White in Los Angeles at; Don Jeffrey in New York at

To contact the editor responsible for this story: Emma Moody at

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