Disney Warns of Sharply Lower Quarterly Profit

Walt Disney Co. on Friday warned Wall Street that its earnings in the fourth quarter will be sharply off as a result of slower business overseas, poor prime-time ratings at the ABC network and various costs to shrink some businesses and start new ones.

Disney said that its earnings in the quarter are expected to range from 15 to 16 cents a share before an additional 2 cents a share is subtracted because of the downsizing of part of the company’s “creative content” segment.

In that business group, Disney is combining its Hollywood and Touchstone movie labels, and also has consolidated some of its consumer products offices in Asia.

Disney’s announcement came after analysts this week started cutting their forecasts for the company, whose fiscal year ends Sept. 30. Despite the quarterly drop, Disney said it expects earnings in the 1998 fiscal year to be up slightly from 1997’s results. Even still, Disney’s estimate is below the range analysts had estimated.

Internationally, the economic turmoil in Asia has hurt the company by slowing sales of Disney merchandise and videos there.

Although stocks were up on Friday, Disney’s stock fell $1.25 to close at $25.81 in trading on the New York Stock Exchange. Down about 40% from its 52-week high, Disney’s stock has been undergoing one of its worst periods ever in the wake of the recent overall dip in the broader stock market.

Although Disney said in a statement that operating income for its theme park and resort unit would rise in both the fourth quarter and the year, analysts said that the company’s theme park attendance might have been higher had the recent forest fires not hit the Orlando area during the peak weeks of the park’s summer season.

In broadcasting, Disney’s ABC unit continues to suffer from poor prime-time ratings. In addition, both ABC and Disney’s ESPN cable sports network are being socked with huge costs to broadcast such sports as National Football League and National Hockey League games.

Disney’s results in both the fourth quarter and the year have been hurt by start-up costs for a number of new ventures. Among them are Disney Cruise Line, international Disney Channels, ESPN Classic Sports Network, various Disney initiatives on the Internet, ESPN magazine and a chain of ESPN Zone restaurants.

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Analyst Jeffrey Logsdon of Cruttenden Roth & Co. in Irvine, one of the first analysts to sharply downgrade projections for Disney, said that the lower results aren’t a surprise given the economic tumult internationally.

“I think just about every multinational corporation is experiencing either demand problems or currency problems. For Disney, it appears to be a little more on the demand side,” Logsdon said.

Although it isn’t unusual for large companies to put out statements warning that earnings will be softer, it’s somewhat unusual for Disney. Part of the reason is that profit drops for Disney in the last few years have been rare.