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Disney sees profit jump in quarter

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Times Staff Writer

Walt Disney Co. doubled its fiscal first-quarter profit, thanks to sales of its stakes in two media outlets and the fortuitous timing of a pair of DVD releases.

Disney’s film studio did even better, more than quadrupling its profit to $604 million, mainly by putting out home-video versions of the hits “Cars” and “Pirates of the Caribbean: Dead Man’s Chest.” The Burbank colossus brought in an additional $657 million by selling its 40% stake in E! Entertainment Television and its half of US Weekly magazine.

Disney said net income for the period ended Dec. 30 jumped to $1.7 billion, or 79 cents a share, from $734 million, or 37 cents, a year earlier. Revenue increased 10% to $9.73 billion.

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Disney reported its results after the close of regular trading, where its shares gained 29 cents to $35.48. The stock rose to $36.17 after the bell, capping a year-old run from beneath $26.

The upbeat earnings report was tempered by a warning of declining attendance at Hong Kong Disneyland, which opened in 2005. Disney has pointed to that park as a leading example of its top-priority effort of international expansion, and the company hopes to use it as a springboard to win Chinese government approval for a park in Shanghai.

But Disney said the Hong Kong park drew fewer visitors in the quarter just ended than in the same three months a year earlier and that attendance and sales had missed projections.

“If these trends do not significantly improve,” the company warned, it would be in violation of pledges it made to lenders on the project. Disney could then be forced to refinance $294 million in debt.

Wednesday’s admission is the starkest to date about the Hong Kong property, where Disney has a large minority stake. Even so, and despite flat attendance at Disney’s U.S. parks, higher average spending by U.S. visitors pushed the division’s profit to $405 million from $375 million.

Profit at the network division including ABC and ESPN rose to $750 million from $606 million, while profit from consumer products dropped to $235 million from $270 million.

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On the same day the Hong Kong theme park warning was included deep in a Securities and Exchange Commission filing, Disney was hosting Wall Street analysts for an annual series of closed-door presentations in Florida. The company made audio of the day’s events available over the Internet.

After dinner there Wednesday, top park division executive Jay Rasulo told analysts that the Hong Kong property was “developing a little more slowly” than was envisioned when the deal was struck in 1999. He said Disney executives had just returned from Hong Kong after identifying some challenges there, “especially in sales and marketing.”

Rasulo said that in the longer term, Disney would need to invest in order to expand the park. A problem with the effort in Hong Kong, analysts said, is that most people in the area didn’t grow up with Disney characters.

Travel restrictions are another factor, as are such management missteps as underestimating how many people would try to use previously issued tickets on peak days.

“You have a combination of some cultural issues and some issues with the park not having that kind of word of mouth,” said industry analyst Anthony Valencia of Trust Co. of the West.

Valencia compared the growing concern to past woes at Euro Disney in France, where managers at first overestimated demand for food and lodging.

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joseph.menn@latimes.com

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