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AMC Entertainment's Q2 Preview Sends Investors Running; Shares Drop 25%

What happened?

Shares of AMC Entertainment Holdings Inc. (NYSE: AMC), the largest movie exhibitor in the U.S, in Europe, and throughout the world, fell off a cliff Wednesday morning, shedding roughly a quarter of their value after the company gave a preview of its second-quarter results. Hint: It wasn't pretty.

So what

AMC, which owns roughly 1,000 theaters with 11,000 screens, expects to report total revenues for Q2 of between $1.2 billion and $1.204 billion, below analysts' consensus forecast of $1.25 billion. It wasn't the worse-than-anticipated top line that drove the stock lower Wednesday, however -- it was the shocking bottom-line loss. AMC said it expects to report a net loss for Q2  of between $174.5 million and $178.5 million, compared to the net earnings of $24 million during the prior-year quarter. That equates to a loss per share of between $1.34 and $1.36, compared to the earnings per share of $0.24 during the prior year.

Image source: Getty Images.

Now what

Along with the dismal Q2 preview, management suggested that Q3 will be equally rough for investors. Because of that, AMC also announced a cost-reduction and revenue-enhancement plan that will attempt to generate at least $30 million adjusted-EBITDA contribution through the end of 2017. While those strategic initiatives will help, the truth is that movie ticket sales trends aren't favorable for the company. North American box office decreased roughly 3.3% in Q2, and in U.S. alone, it declined roughly 4.4% year over year. These trends have long-term investors rethinking their investment thesis -- because if more people are staying home and binge-watching Netflix instead of heading to the movies, theater companies are going to have to adapt or face further rough quarters like this one.

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Daniel Miller has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.