AMC Q2 results on deck amid strong box office, strikes, stock

AMC Entertainment Holdings Inc. reports second-quarter results after market close on Aug. 8 amid strong box-office trends and challenges in the shape of Hollywood strikes and the company’s ongoing stock-conversion battle.

“Theatrical exhibition is on the path to normalization, with an improving release slate in 2023,” Wedbush analyst Alicia Reese wrote in a note this week. “Our industry estimates are for 2023 North American box office to end up 20% over 2022 (~78% of 2019 box office), with AMC at least maintaining its 22% market share if not expanding with its vast network of premium large format screens,” she explained. “We expect positive commentary about the successful Barbie and Oppenheimer runs so far in AMC’s domestic and European markets.”

AMC AMC, +0.41% enjoyed its best week ever based on admissions revenue from July 21 through July 27, the company said Monday, setting a new company record for U.S. theaters and global theaters. Some 65 U.S. locations also set single-week box-office records, including 13 locations in the greater Los Angeles market.

Related: AMC enjoys ‘best week ever’ for box-office revenue, fueled by ‘Barbie’ and ‘Oppenheimer’

However, the actors’ and writers’ strikes are casting a shadow over the entertainment industry, as acknowledged by AMC CEO Adam Aron in a recent tweet. “Moviegoing in 2023 still will be well below 2019 pre-COVID levels,” he wrote. “The writers and actors strikes create uncertainty ahead. And cash is very tight.”

But Reese is anticipating a positive update from the movie-theater chain and meme-stock darling when it reports its second-quarter results. “We also expect an overall optimistic view on the company’s ability to mitigate any negative impacts of the ongoing labor strikes, should they end in the next one to two months,” she wrote.

The company’s stock-conversion battle is also ongoing. AMC’s plan to convert its AMC Preferred Equity APE, +0.56% units to common stock was blocked last month when a Delaware judge rejected a settlement that would have allowed the deal to proceed. The stock-conversion plan was part of the company’s ongoing battle to eliminate debt.

Related: What’s next for AMC after court blocks its APE-conversion plan?

If AMC is unable to convert APE shares, the company will be forced to issue significantly more APE shares to cover its upcoming cash requirements, according to Wedbush’s Reese. “This will result in significantly more dilution for the company’s overall outstanding share count,” she wrote, noting that, at market close on Aug. 1, AMC shares were trading roughly at three times the price of their APE counterparts.

“We expect continued volatility in shares of both AMC and APE while the judge considers the modification AMC submitted,” added Reese. “In the meantime, we think AMC will wait as long as possible before issuing APE shares at such a significant discount to AMC shares, and while Adam Aron attempts to persuade his shareholders to act in the best interest of AMC.”

Regardless of the outcome of the pending court case, Wedbush expects AMC to continue raising cash with its equity while chipping away at its “massive” debt balance. AMC exited 2022 with debt of $4.949 billion, down $220.1 million from a year earlier.

Related: AMC has again asked NYSE and FINRA to look into the trading of its stock

Wedbush reiterated its underperform rating and $2 price target for AMC. Of eight analysts surveyed by FactSet, three have a hold rating and five have a sell rating for AMC.

Analysts surveyed by FactSet expect AMC to report a second-quarter loss of 4 cents a share and revenue of $1.287 billion.

AMC’s stock has risen 20.8% in 2023, outpacing the S&P 500’s SPX gain of 17.5%. The APEs have gained 28% this year.

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James Rogers is a Financial Columnist for MarketWatch.