Parks, ESPN Drive Disney’s Profit Up 71%

Walt Disney Co. reported sharply higher quarterly profit Wednesday and again raised its earnings forecast for the year, as gains at its theme parks and ESPN sports cable powerhouse more than offset troubles at its movie studio and ABC television network.

The second consecutive strong earnings report comes at an opportune time for Disney Chief Executive Michael Eisner, who has been fending off a campaign by dissident shareholders to oust him after nearly 20 years at the helm.

Eisner is under enormous pressure to improve Disney’s financial results this year after shareholders registered a 45% withhold vote for his reelection as chairman at the company’s annual shareholders meeting in March.

Restless shareholders cited Disney’s poor earnings and stock price over much of the last seven years. After the vote, Disney’s board stripped Eisner of the chairman title but kept him as chief executive.

Eisner assured analysts Wednesday that the lofty results weren’t temporary and reflected a resurgence at the company.

“We believe we are headed toward a return to the kind of strong and steady earnings growth our shareholders have every right to expect,” Eisner said in a conference call.

Citing an improving economy and new attractions such as Tower of Terror at its California Adventure in Anaheim, Disney said that its profit would grow at least 50% this year, to about 98 cents a share, excluding one-time charges such as the possible sale of the Disney Stores. It was the second time this year that Disney elevated its earnings estimate.

“This will give Michael a little less static in the short run,” said Mario Gabelli, head of New York-based Gabelli Asset Management. “He’s just bought himself some more time.”

Former directors Roy E. Disney and Stanley P. Gold, who led the shareholder revolt against Eisner, continued their criticism of him. “The unfortunate reality is that despite the appearance of strong growth this year, 2004 earnings will approximate those achieved seven years ago,” they said in a statement. A Disney spokesman declined to comment.

Disney said that for its fiscal second quarter, which ended March 31, profit surged to $537 million, or 26 cents a share, from $314 million, or 15 cents, a year earlier -- a 71% increase. Sales rose 11% to $7.19 billion. On average, analysts had estimated Disney would earn 21 cents a share.

“They had a fabulous quarter,” said Jeffrey Logsdon, an analyst with Harris Nesbitt Gerard.

Disney’s media network unit led the way with operating income climbing 76%, to $704 million, the bulk of that coming from cable networks group that includes ESPN. The sports channel has enjoyed nine straight quarters of ratings increases, which in turn have boosted advertising revenue.

In the broadcast segment, which includes ABC television, operating income totaled $28 million, contrasted with a loss of $105 million a year earlier. Higher ad sales and lower sports-programming expenses were behind the improvement.

The big question for investors is how ABC, stuck in fourth place in the ratings, will fare this year. Disney recently overhauled management at ABC. Disney President Bob Iger said the network remains on track to achieve profitability in 2005, but that largely will depend on the success of the new fall schedule.

Operating income at Disney’s parks and resorts rose 21% to $188 million, reflecting an ongoing recovery in the travel and tourism industry, which has been suffering since the Sept. 11 terrorist attacks.

Walt Disney World, the company’s signature resort, led the way with an 18% run-up in attendance. The Florida complex, which includes four theme parks, saw increases in both domestic and international travel.

Attendance at the company’s two Anaheim parks, Disneyland and Disney’s California Adventure, gained 8%.

Euro Disney, which operates the Disneyland Paris resort that also has been hurt by the travel slump, continues to struggle. It has until the end of this month to refinance debts and avoid running out of cash.

The movie division, which last year set a box-office sales record, saw its operating income drop 26%, to $153 million, as the company took write-downs related to the historic epic “Alamo” and the animated barnyard feature “Home on the Range.” Disney did not disclose the size of the write-downs on each movie. Those results were partially offset by strong worldwide home-video sales, including last year’s hits “Pirates of the Caribbean” and “Finding Nemo.”

Operating income at Disney’s consumer products unit, which includes the Disney Store chain and the business that licenses products to retailers, rose 42% to $75 million.

Despite all the heat he has taken this year, Eisner gave no hint Wednesday of stepping down. When asked what the board was doing to find a successor, Eisner quipped: “The board continues to analyze internal candidates and those who would be appropriate if and when I get hit by a truck, which I hope will not be in a while.”

Succession is a hot-button issue for investors and will be among the topics that officials from several pension funds will bring up with Disney directors at a meeting next week.

Disney announced the results after the market closed. Its shares rose 2 cents to $23 in regular New York Stock Exchange trading. In after-hours trading, they rose to as high as $23.50.