Disney’s Profit Slides as War Takes a Toll

Walt Disney Co.’s film studio brought down the house in its fiscal second quarter, although the rest of the company remained stuck in the cellar.

Despite a stellar quarter at the box office and for its DVD sales, Disney on Thursday said second-quarter profit dropped 12% as its theme parks were hurt by the Iraq war, its networks paid out more money for sports programs and its stores muddled through a soft economy.

Nonetheless, the $229 million in net income, or 11 cents a share, in the quarter ended March 31 was roughly in line with Wall Street’s tempered expectations.

The company in March had warned of softer growth because of the lagging economy and the conflict in Iraq. In an earnings conference call with analysts, Chairman Michael D. Eisner predicted that when the economy does recover, “Disney will be one of the greatest beneficiaries.”

Disney’s second-quarter profit compares with $259 million, or 13 cents a share, in the year-earlier period.

Sales for the quarter rose 8% to $6.33 billion, compared with $5.86 billion a year ago.

Disney blamed the Iraq war and terrorism fears for cutting into tourism at its theme parks. Operating income for that division plunged 45% to $155 million on $1.5 billion in revenue.

Despite a strengthening advertising market, Disney’s media networks, which include ABC and ESPN, saw operating income fall 25% to $232 million. Disney laid much of the blame on the money it spends for National Football League and Super Bowl rights, as well as what it costs to show National Basketball Assn. games.

Disney added that increased new coverage and preempted programming because of the Iraq war cost the company about $50 million overall. About $32 million of those costs came in the second fiscal quarter, Disney said.

President Robert Iger said the advertising market continues to strengthen. But SoundView Technology Group analyst Jordan Rohan questioned whether softer ratings during the last few months at ABC will allow Disney to deliver bigger numbers to advertisers.

“I’m not sure how aggressively they can increase the audience guarantees,” Rohan said.

The box-office hit “Bringing Down the House” and strong DVD and videocassette sales of such hits as “Sweet Home Alabama” and “Spy Kids 2: The Island of Lost Dreams” helped power the studio’s operating income to $206 million on $1.9 billion in revenue. A year earlier, the unit had just $27 million in operating income.

Disney’s consumer-products division continued to struggle, especially its Disney Stores. Operating income in that unit plunged 38% to $53 million on $500 million in revenue.

During the conference call, Chief Financial Officer Thomas Staggs said Disney won’t book a loss on its tentative $180-million sale of the Anaheim Angels but added that the company is unlikely to book much of a profit on the deal either. The company has an agreement to sell the team to Phoenix businessman Arturo Moreno.

Disney also announced it will compress the timetable in releasing on DVD some of its classic films, from 10 years to seven. Disney typically stretches out the release on video of such classics as “The Lion King,” “Snow White and the Seven Dwarfs” and “Pinocchio” to create more demand.

But Eisner said that by the time those titles are released, high-definition DVD probably will take hold, “which gives us the ability to start over again.”

Disney shares on Thursday rose 6 cents to $18.72 on the New York Stock Exchange. The earnings were released after the market closed.