Bloomberg News

Coinstar Falls on DVD Price Increase, Profit Forecast

October 28, 2011

(Updates with closing stock price.)

Oct. 28 (Bloomberg) -- Coinstar Inc., owner of the Redbox movie-rental kiosks, fell after saying it will raise DVD prices to reflect rising debit card fees and issuing a forecast that fell short of analysts’ estimates.

Fourth-quarter profit from continuing operations will be 57 cents to 67 cents a share, Bellevue, Washington-based Coinstar said yesterday in a statement. That is below the 78-cent average of 14 analysts estimates compiled by Bloomberg.

Coinstar is raising its DVD rental price by 20 cents to $1.20, effective Oct. 31, to counter rising expenses, including higher debit-card fees that resulted from U.S. legislation. Blu- ray and video-game prices won’t change, the company said.

“We’re working to mitigate those over the next quarter, quarter and a half time frame,” Chief Financial Officer J. Scott Di Valerio said in an interview. “We’re confident we’ll be able to do that.”

Sales this quarter will be $485 million to $510 million, Coinstar said, compared with analysts’ projections of $482.4 million.

Coinstar fell 7 percent to $49.22 at the close in New York. The stock lost 2.3 percent to $52.95 yesterday after a Bloomberg report that some of Hollywood’s largest movie studios may seek to impose a 60-day delay on rentals of new releases.

Michael Pachter, an analyst at Wedbush Securities Inc. in Los Angeles, said investors were probably reacting to the rising costs.

“I’m not sure why the Street thinks that will devastate them, but no elaboration leads to people selling first,” Pachter said in an e-mailed statement.

Third Quarter

Coinstar said third-quarter profit jumped 90 percent as the company picked up customers from Netflix Inc.

Net income rose to $37.1 million, or $1.18 a share, from $19.5 million, or 60 cents, a year ago. Analysts expected 88 cents excluding items, the average of 14 estimates compiled by Bloomberg. Sales gained 22 percent to $465.6 million, topping projections of $462.1 million.

Coinstar is benefiting from defections at Netflix, where 800,000 U.S. subscribers dropped service after the company raised prices. The Redbox gains started in July, when Netflix said it would increase the price for both streaming and DVDs to $15.99 from $9.99. Visits to Redbox’s website jumped 12 percent that month, according to researcher ComScore Inc.

Redbox is the largest operator of DVD dispensers, with 33,300 machines as of Sept. 29, typically near the entrances of retailers including Wal-Mart. Coinstar generated 84 percent of its revenue from Redbox kiosks last year, according to data compiled by Bloomberg.

--Editors: Niamh Ring, Anthony Palazzo

To contact the reporter on this story: Michael White in Los Angeles at mwhite8@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net


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