And though 2005's "Wallace & Gromit: The Curse of the Were-Rabbit" won an Oscar for best animated feature, the studio reported a $25 million loss for the film.
For the year, earnings for DreamWorks are expected to be about 28% less than last year, the Merrill Lynch report found.
Despite the financial hit, executives from both companies highlighted mutual respect for the other's talents and ambitions in their statements — no matter how far they may have drifted apart.
"While I will always be a fan and an admirer of Aardman's work, our different business goals no longer support each other," DreamWorks chief executive Jeffery Katzenberg said in a statement.
The sentiment was echoed by Bristol, England-based Aardman.
"Both companies are aware that our ambitions have moved apart and it feels like the right time to move on," Aardman co-owners Peter Lord and David Sproxton said in a joint statement.
The pair of computer-animation studios scored initial success with their 2000 release, "Chicken Run," which grossed more than $200 million worldwide.
To end the deal, DreamWorks is opting out of their five-picture contract early, the company said in a statement.
As part of the 1999 deal, Aardman was to produce and deliver up to five pictures to DreamWorks, but with no new productions in development after "Flushed Away," the two studios decided to opt out of the agreement early.
DreamWorks has no further comment on the matter until its fourth-quarter earnings report is released, said Bob Feldman, a spokesman for the company.
The Merrill Lynch report placed high expectations on "Shrek the Third" for the company this year with a projected domestic take of $325 million for DreamWorks, but warned that a poor performance of the film sandwiched between the releases of the third installments of Spider-Man and Pirates of the Caribbean could have "a severe negative impact" on the franchise and its stock.
For its part, Aardman said in a statement that it has "an ambitious slate of feature-film projects in development."