Message-ID:  

http://www.fool.com/news/mft/2004/mft04021818.htm

OUR TAKE

WWE Keeps Scrapping
 
By Seth Jayson 
February 18, 2004 

A screaming World Wrestling Entertainment (NYSE: WWE) Chair Vince
McMahon took to the ring last night, forehead veins throbbing, to
announce that the WWE had achieved a 44% bump in earnings for the
third quarter. Then he hit WCW rival Eric Bischoff with a folding
chair.

OK, I made up most of that. But maybe McMahon should have been
crowing, because there are some good numbers amid WWE's bad sales
news. Let us take a look, with all the dignity we can muster when
discussing a company that turns tidy profits from scripted violence
and T-shirts with the U.S. flag overwritten by patriotic phrases like
"You Suck."

Over the past quarter, WWE seems to have wrapped a beefy bicep around
its costs, turning around after some hard times and building on last
quarter's success. Cost cutting is vitally important because revenues
were down in almost every segment of the business, falling 15% overall
to $79.1 million. Average attendance at live events was down both here
and abroad. Ticket prices were down, too, and pay-per-view revenue
experienced a big drop due to the scheduling of the latest event,
which will be recognized in the next quarter.

All this might spell disaster except that the firm increased gross
margins by almost 7% and cut SG&A by 27% so far this year. The
company's lean and mean refocus has yielded $46.5 million in free cash
flow (FCF) for the first nine months of this year, over three times
last year's results -- though it blew $20 million to pay off the lease
on the corporate jet. Ouch.

Still, if we assume similar fourth-quarter results and extrapolate the
FCF to a run rate of $60 million for the full year (a conservative
estimate, since Q4 is usually the biggest quarter), the company trades
at an enterprise value-to-free cash flow ratio of 11.3. That's already
much cheaper than most of Mr. Market. If McMahon and company can
continue to smack down costs, their predicted turnaround in revenues
could put WWE investors in a winning position.


--- Internet Rex 2.29