Disney’s 4th-Quarter Profit Jumps 24% Despite Decline in Film Revenue

Walt Disney Co. on Thursday reported a 24% increase in fiscal fourth-quarter profit, powered by its ESPN sports channels and the favorable resolution of a federal tax dispute that helped offset a drop in earnings at its film unit.

In the quarter that ended Sept. 30, Disney had net income of $516 million, or 25 cents a share. A year earlier, net income was $415 million, or 20 cents a share.

The results beat the estimate of 18 cents a share by analysts surveyed by Thomson First Call.

The Burbank-based entertainment giant saw revenue climb to $7.54 billion, up from $7.01 billion.

“It ended a much better year for Disney than the company had last year,” said Lowell Singer, a media analyst with S.G. Cowen & Co.

Disney’s quarterly earnings got the biggest lift from the resolution of a dispute with the Internal Revenue Service involving its returns from 1993 to 1995. That agreement freed up money the company had set aside as reserves, boosting profit 6 cents a share.

A year earlier, the company’s earnings increased 3 cents a share because of the resolution of a separate state tax issue. Carving out the tax issues, Disney’s fourth-quarter earnings would have been 19 cents a share, compared with 17 cents a year earlier, Chief Financial Officer Thomas Staggs said.

Chief Executive Michael Eisner discussed Disney’s earnings in a conference call with analysts from Georgetown, Del., where he was testifying in a shareholder lawsuit stemming from his ill-fated hiring of Michael Ovitz as president.

Eisner is seeking to rebuild shareholders’ confidence after they gave him a 45% no-confidence vote at the company’s annual meeting in March.

In the call, Eisner underscored current growth across all of Disney’s business divisions and declared that its brands were “in incredibly good health.”

“We’ve had a bright year at the Walt Disney Co.,” Eisner said. But, he cautioned, “we are not declaring victory yet.”

For the year, Disney earned $2.34 billion, or $1.12 a share, on record revenue of $30.75 billion.

The biggest quarterly gains were made at Disney’s media networks, where operating income increased 50% to $448 million, up from $298 million a year earlier. Operating income at the cable division increased 39%, to $523 million.

The increase was attributed, in large part, to higher ad revenue and affiliate fees for ESPN channels and lower rights fees paid to the National Football League.

Losses, however, continued for the company’s broadcast segment, which includes ABC. That unit lost $75 million for the quarter, although that was a 5% improvement from a year earlier. Disney President Robert Iger said ABC could become profitable in the current fiscal year.

Although ABC has two of prime-time’s biggest new shows, “Desperate Housewives” and “Lost,” the success hasn’t translated to Disney’s bottom line yet. The bulk of the network’s ad time for the fall season was sold in June, when expectations were low. ABC also had difficulty selling time for another new hit, “Wife Swap,” because of the provocative title.

Advertisers have since come around, Iger said, and the network’s ad revenue will perk up in January.

Operating income at Disney’s theme parks division increased 25%, to $282 million. That came despite Disney’s parks being hammered by Florida’s hurricanes. Those storms cost the parks about $35 million.

Consumer products operating income increased 43% to $146 million, in large part because of the closing of some Disney Stores and increases in merchandising licensing.

Meanwhile, the film studio suffered through another bad quarter with such box-office flops as the comedy “Mr. 3000” with Bernie Mac.

Studio operating income fell to $23 million from $205 million a year earlier, when Disney was raking in money from DVD sales of “Pirates of the Caribbean” and Pixar Animation Studios’ “Finding Nemo.”

Disney released results after markets closed. Shares ended at $26.37, down 19 cents, on the New York Stock Exchange.