Eisner on the Defensive as Disney Shareholders Meet

As shareholders gather today in Hartford, Conn., for the company’s annual meeting, Walt Disney Co. Chief Executive Michael Eisner may face a tough crowd.

Disney is struggling in many of its key divisions: ABC, the No. 1 television broadcast network two years ago, now is stuck in third place. Last year Disney, a movie box-office leader for many years, fell to fourth place in market share in North America, according to ACNielsen EDI Inc. And the sharp drop in air travel after last fall’s terrorist attacks slowed business at Disney’s theme parks, which account for one-third of the company’s operating income and were already experiencing a slowdown.

The poor results have put Eisner, architect of the firm’s storied turnaround in the 1980s and 1990s, in the unusual spot of being on the defensive. Even though Disney’s stock price has rebounded since Sept. 11, the shares are stuck at 1996 prices. On Friday, Disney shares fell 34 cents to close at $23.90 on the New York Stock Exchange.

“When you consider where we’ve grown over the last five years ... the problems are fixable, minimal and not substantial,” Eisner said in an interview Friday. “The overriding message is that our company is in great shape.”

Many analysts say Eisner and his lieutenants are making the right moves to manage through the slump. To operate more efficiently, Disney has shut 50 stores, cut costs at its movie studio, reduced operating hours at theme parks and eliminated 4,000 jobs. Eisner recently tapped ABC executive Susan Lyne to reinvigorate ABC’s prime-time lineup.

“We’re [only] a hit or two away from bringing the prime-time schedule at ABC to where we want to be,” Eisner said.

But such measures have not mollified some investors, who have grown impatient with the company’s performance.

“We just felt uncertainty around travel post-Sept. 11 was going to create head winds for [Disney’s] theme park business. That was one thing we had always counted on,” said John Waterman, chief investment officer for Rittenhouse Financial, an investment management firm in Radnor, Pa. Rittenhouse sold its remaining Disney stake in September. “There just wasn’t anything from an earnings perspective that we could [count] on in the next year because all of their businesses had uncertainty.”

Some investors wonder whether Eisner can again turn around Disney. “Almost everywhere you look, every [Disney] division is under-performing,” one money manager said.

Other investors say Eisner has made the best of a bad situation, noting that many of the company’s woes are due to economic conditions beyond its control.

“Beyond ABC, I think they get pretty good marks,” said Larry Haverty, fund manager at State Street Research & Management, which owns Disney stock.

“This is a company that could have easily overreacted to Sept. 11 something fierce. They could have hit the panic button and they didn’t.”

Fred Fromm, an analyst with Franklin Templeton Investments, agrees and predicts Disney’s consumer products and theme park businesses will turn the corner by next year.

“We think a lot of the problems are behind us,” said Disney President Bob Iger. “If you look at the company’s performance over the last five years we are a substantially different and vastly improved company.”

Iger cited the addition of theme parks in Anaheim; Orlando, Fla.; Paris; and Tokyo; the success of Radio Disney and the growth of the company’s television and cable business since the 1996 acquisition of Capital Cities/ABC. “We believe that when the economy rebounds and advertising and tourism improve, we’ll be in great shape,” Iger said.

After shuttering its Go.com Internet portal last year at a cost of more than $800 million, Disney has refocused its Internet business, which the company predicts will break even by year end. And the company’s consumer products division, which also has been reorganized, is on a growth path, Iger said.

In addition to issues of financial performance, Eisner will be confronted today with various shareholder proposals.

One resolution calls for Disney to adopt a code of conduct for manufacturers in China under which the company and its suppliers would abide by international labor standards. Another calls for Disney to report on its theme park safety guidelines and all ride injuries over the last two years. And a shareholder activist group is backing a resolution that would restrict any Disney officer from receiving more than 5% of the total stock options granted in a given year. In 1996, Disney granted Eisner 24 million stock options, or 26% of the total options that year.