Movies Help Drag Disney’s Profit Down

Walt Disney Co.’s fiscal third-quarter profit fell 2% as weak films, soft video sales and reduced demand for consumer products in Asia held back growth for the first time in several quarters.

Net income at the entertainment giant fell to $415 million, or 20 cents a diluted share, from a pro forma $425 million, or 21 cents, in the year-ago period. Disney missed by a penny the average estimate of analysts surveyed by First Call Corp.

Disney’s creative content business, which includes its film, video and TV production operations, showed the steepest drop in operating profit as movies such as “The Horse Whisperer” and videos like “Flubber” failed to match last year’s strong releases, while consumer products sales in Asia also slipped. That more than offset gains at Disney’s TV stations and ESPN cable network and attendance growth at its theme parks.

“There’s no question there’s a slowdown,” said analyst Jessica Reif Cohen of Merrill Lynch, who has a “neutral” rating on Disney.

Disney stock fell 81 cents to $37.75. The earnings were released just after the close of regular U.S. trading.

Some analysts said the shares may trade lower today after Disney missed analysts’ forecasts, which had already been cut several times over the last couple of months.

Disney Chairman Michael Eisner has said in the past that expansion of the company’s theme park business and the introduction of other new products would yield annual earnings growth in the double digits. That goal, though, may be harder to reach this year after the softness in the third quarter.

Still, many analysts remain bullish on the stock, which has soared by about 50% in the last 12 months.

“Disney has hit a speed bump, but it remains a great long-term investment vehicle and a tremendous global brand,” said analyst Harold Vogel of SG Cowen & Co.

Disney’s creative content division, its largest unit in terms of revenue, reported a 57% decline in operating profit. Home video sales in the U.S. and movie ticket sales worldwide failed to match the strong theatrical sales last year for movies such as “101 Dalmatians” and “The English Patient” and video sales of “101 Dalmatians.”

Revenue in the quarter ended June 30 rose 5% to $5.25 billion from $4.98 billion.

The results for the year-ago period are pro forma, treating the sale of some publishing assets and Disney’s KCAL Los Angeles TV station as if they occurred at the beginning of fiscal 1997.

Operating profit in Disney’s broadcast division rose 14% to $384 million amid advertising gains at its cable-TV networks, higher revenue at its TV stations and less expensive prime-time programming at the No. 3-ranked ABC.

ABC’s prime-time ratings continue to decline, though the network was able to keep some costs in check by ordering cheaper shows and airing more reruns. ESPN, meanwhile, gained from higher ad sales and subscriber growth.

The theme park and resort business also chalked up gains, with operating profit rising 10% to $428 million.

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