Disney Posts Loss; Troubles in Europe Blamed
In what amounts to a financial nightmare before Christmas, Walt Disney Co. on Wednesday disclosed its first quarterly loss in nine years, the result of huge losses at its European theme park.
The results offered further evidence that Euro Disney, near Paris, is a rare misstep for one of the most successful U.S. corporate managements in the last decade, led by Chairman Michael D. Eisner and President Frank G. Wells.
The Burbank-based entertainment giant’s $77.8-million loss for its fiscal fourth quarter came as it allocated $350 million to deal with Euro Disney-related problems. Disney’s share of the loss on its stake in Euro Disney totaled a whopping $514.7 million in its recently concluded fiscal year, it reported.
Despite those losses, Disney made a profit of nearly $300 million for the entire fiscal year ending Sept. 30, because of the strong performance of its entertainment division and U.S. theme parks. That compares to a profit of $817 million a year earlier.
The Euro Disney disclosure comes as Disney prepares this morning to unveil details of a new American history theme park and shopping area in suburban Washington. The proposed park is expected to differ considerably from Disney’s Anaheim and Florida attractions by emphasizing cultural and educational exhibits.
Euro Disney, which was planned in the 1980s when Europe’s economic outlook was brighter, is struggling against poor attendance, bad weather and cultural problems--such as tourists who are unaccustomed to spending money on theme park hotels, souvenirs and food. In response to those problems, executives at the 19-month-old park recently slashed prices on food and rooms.
Other reasons for the park’s poor showing include high unemployment rates in Europe and a strong French franc, which has made a visit to Euro Disney more expensive for tourists from nearby countries. In addition, Euro Disney is saddled with high interest payments on more than $3 billion in debt, as well as a soft real estate market that has prevented it from making money by selling nearby land it owns. Also, the importing of the Disney culture stirred a major public debate in France, with some intellectuals dubbing the park a “cultural Chernobyl.”
Still, financial analysts were surprised by the size of Disney’s loss. “Nobody was expecting this,” said Salomon Brothers’ Margo L. Vignola, who cut her estimate of Disney’s 1994 profits by about 10% after the announcement.
Disney owns 49% of Euro Disney SCA, which operates the theme park, with rest of the company publicly held. Disney also controls management of the park. Euro Disney SCA lost $921 million in the year ended Sept. 30.
The quarterly loss is the first for Disney since late 1984. That loss, posted two months after Wells and Eisner were brought in to turn around what was then a lethargic company, stemmed from an internal housecleaning led by the pair.
Euro Disney’s problems overshadowed an otherwise strong year for Disney. High points included the hit film “Aladdin,” record videocassette sales of “Beauty and the Beast,” a big jump in profits from Disney merchandise and a strong performance by its U.S. theme parks.
“Clearly there is a financial mess and a financial problem (from Euro Disney), but it’s not cardiac arrest,” said Seidler Cos. Managing Director Jeffrey Logsdon.
Disney’s $8.5 billion in revenue and $1.7 billion in income from operations set annual records, with all of its segments improving. In a joint statement, Eisner and Wells said they were pleased with the growth in its business segments given the soft economy.
Disney’s quarterly result did, however, reflect its modest box-office performance over the summer. Its film entertainment group’s operating profit fell 22%, to $95 million.
While rival studios were enjoying such huge hits as “Jurassic Park,” “The Firm” and “The Fugitive,” Disney released a series of less successful films such as “Hocus Pocus” and “Son in Law.” The current outlook for its film and video operations are better, with “Cool Runnings” and “The Nightmare Before Christmas” performing well at the box office, “Aladdin” setting records in videocassette sales and the sequel to the hit film “Sister Act” coming next month.
As for Euro Disney, the company in a statement said that the European park will need significant funds in 1994. Disney said that it plans to fund Euro Disney until a financial restructuring can be worked out with lenders. Should that fail, Disney warned, “Euro Disney would face a liquidity problem.”
Analysts interpreted the tone of the warning as something of a negotiating tactic to prod banks, the French government and unions into cooperating on a financial restructuring and into letting Disney have more control over the park’s destiny.
“Disney is letting everybody know they aren’t just writing a blank check,” Logsdon said.
About half of the $350-million reserve being set aside by Disney is for money Euro Disney is unable to pay the company for such services as engineering, design and construction work at the park. Disney Chief Financial Officer Richard Nanula said in an interview that the company has a claim for that money and is not giving up on plans to eventually collect it.
For now, few observers see Disney giving up altogether on Euro Disney, despite the company’s frustrations. In past statements, Disney has made it clear it plans to stick it out.
Disney shares closed at $41.125 Wednesday, off 12.5 cents, after trading as low as $40.125 early in the day.
A Park’s Problems
Walt Disney Co. on Wednesday reported its first quarterly loss in nine years. The U.S. company set aside $350 million in the fourth quarter to cover losses in its investment in the Euro Disney theme park.
Euro Disney Facts
* Operators: Euro Disney SCA, 49% owned by Walt Disney Co.
* Opened: April, 1992
* Location: 32 miles east of Paris
* Attendance: 17 million visitors since opening
* Admission price: $29.86 adults, $21.33 children
* Size: 5,000 acres, of which about one-third is developed
* Rides: 36
* Hotels: 6 with 5,200 rooms
* Loss: The European park lost $921 million for the year
