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DreamWorks sees loss, details inquiry

LOS ANGELES -- Less than a year after going public on the strength of hit films such as ''Shrek," DreamWorks Animation Inc. SKG is battling a DVD market slump that forced it to warn yesterday of a loss in the second quarter and to lower its full-year outlook.

The company, which badly missed first-quarter profit estimates due to disappointing revenue from home video sales of ''Shrek 2," also disclosed it is the target of a securities probe into the trading of its stock and release of first-quarter results. It also said its main shareholders decided to postpone indefinitely a planned $500 million offering of common stock.

The disclosures sent DreamWorks shares tumbling $3.54, or 13.2 percent, to close at $23.27.

The stock had climbed as much as 52 percent after its trading debut last October, but it now is about 17 percent below its initial public offering price of $28.

The company blamed the weakened earnings forecast on waning demand for home videos. It cited a review of current sales and inventory that prompted an increase in reserves for returned products.

DreamWorks is now expecting a second-quarter loss of 7 to 9 cents a share; it had expected to break even. Annual profit estimates were lowered to 80 to 90 cents per share, from a previous range of $1 to $1.25 per share.

The news was sobering, given the Hollywood heavyweights behind DreamWorks SKG, the company that spun it off: Steven Spielberg, David Geffen, and Jeffrey Katzenberg.

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