AMC Entertainment Group (NYSE: AMC) on Tuesday released preliminary earnings results for the fourth quarter of fiscal 2021 (ending December 31). These results showed a company that continues to recover from the devastation caused by the pandemic.
AMC was forced to close its theaters to guests for several months when it debuted. As billions of doses of COVID-19 vaccines have been administered and people feel increasingly comfortable leaving their homes, AMC’s business is rebounding, though still not not at its maximum. In this regard, AMC has taken a further step and made its operating cash flow positive.
A Blockbuster Hit Fills Seats at AMC Theaters
Prior to the fourth quarter, in the nine months ended Sept. 30, AMC had lost $660 million in operating cash. The company has a high base of fixed expenses that it must pay for regardless of movie theater attendance and concession sales. Therefore, when sales fell due to the pandemic, the company began to suffer heavy losses on the bottom line. Revenue fell 77% for AMC in 2020 compared to 2019.
Despite an improvement in 2021, the company is still far from its pre-pandemic total revenues. That said, preliminary fourth quarter results were a dramatic improvement. In the nine months ended Sept. 30, AMC generated $1.36 billion in revenue. In the fourth quarter alone, AMC’s revenue totaled $1.17 billion. It nearly eclipsed its revenue for the rest of the year in one quarter.
Rising revenue finally halted cash operating losses for AMC. In the fourth quarter, cash from operations turned positive at $216.5 million. Without a doubt, AMC’s results were bolstered by the release of the hit hit Spider-Man: No Coming Home, which has totaled $1.74 billion in worldwide box office sales to date. The film vastly outperformed all others in 2021, and the difference was most pronounced domestically. It grossed $737 million, and the second, Shang-Chi and the Legend of the Ten Ringsmade $225 million at the box office.
Either way, turning cash flow positive from operations is a big step in the right direction for the struggling cinema chain. The company has $5.4 billion in debt on its balance sheet, costing it hundreds of millions a year in interest payments. If it can sustainably generate cash from its operations, it can use those funds to pay down its debt and increase its cash flow even further.
What this could mean for AMC investors
AMC’s share price has fallen about 18.5% since the announcement of the positive results. The title has seen a meteoric rise in 2021 due to its participation in the meme stock frenzy. As a result, its valuation has decoupled from its fundamental outlook.
If he can string together a few more quarters like the fourth, it will go a long way toward paying down debt, reducing expenses, and solidifying the company’s finances in the long run. Whether that will do anything for the stock price remains to be seen.
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