EA Shares Take Hit After Profit Warning

Associated Press

NEW YORK - Electronic Arts Inc. shares took another hit Wednesday after the video game publisher warned it will miss its profit and sales guidance for the fiscal year ending in March.

The publisher of games like "Rock Band" and the "Madden" football series did not give a specific outlook for fiscal 2009, and said it won't do so until it announces third-quarter results in February. But investors are bracing for a significant miss of the adjusted earnings guidance of $1 to $1.40 per share it gave earlier this fall. That guidance was already reduced because of a game delay. Analysts polled by Thomson Reuters expect a profit of $1.16 per share for the year.

Its shares tumbled almost 17 percent in midday trading Wednesday and is down more than 70 percent for the year.

"Just when investors began to believe that things couldn't get worse, they did, and we believe that investors remain skeptical that management is on the right track," wrote Wedbush Morgan analyst Michael Pachter in a note to investors. He lowered his rating on EA to "Buy" from "Strong Buy."

Pachter added he thinks investors "have tired of the promise of a turnaround without the commensurate commitment."

EA Chief Executive John Riccitiello, who took the company's helm in 2007, has worked to cut costs and improve the quality of games. Earlier this year, EA tried to buy smaller rival Take-Two Interactive Software Inc., but the two couldn't agree on a price and the company withdrew its bid.

The company also said after the markets closed Tuesday it plans to cut more than the 6 percent of its work force it announced earlier this fall.

Todd Greenwald, an analyst with Signal Hill Group, said he thinks it was EA's disappointing holiday slate - and not a broader slowdown in the video game industry - are to blame for the bulk of the miss.

"Titles such as 'Need for Speed,' 'Mirrors Edge', 'Rock Band 2' as well as EA's entire sports lineup appear to be underperforming at retail due to a combination of low quality scores, tired franchises, and limited innovation vs. the prior year's release," the analyst wrote, reiterating a "Hold" rating on the stock.

Shares of Redwood City, Calif.-based EA fell $3.21, or 16.6 percent, to $16.14 in midday trading. The stock fell as low as $15.50 - its lowest level in eight years - earlier in the session.

Shares of rival Activision Blizzard Inc., which has been holding up much better than EA, slid 11 cents to $9.98.

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