TV Units Help Boost Disney’s Profit 41%

Walt Disney Co. said Tuesday that its fiscal third-quarter profit soared 41%, propelled by strong performances by its ESPN and ABC television networks as well as increased attendance and consumer spending at its theme parks.

The Burbank-based company, however, reported its first loss in its film studio unit in nearly four years. The slide was largely caused by weaker sales worldwide of home videos.

“This is another example of what appears to be a slowing DVD market,” said Lowell Singer, media analyst with SG Cowen & Co. “A few years ago, people bought DVDs to build up their libraries, and now they are being a little more discriminating in what they buy and rent.”

For the quarter ended July 2, Disney’s net income swelled to $851 million, up from $604 million the previous year. It was the company’s best third-quarter performance in five years.

Revenue grew 3% to $7.7 billion.

Disney’s earnings of 41 cents a share beat Wall Street analysts’ consensus estimate of 38 cents. In last year’s third quarter, the company earned 29 cents a share. The recently ended quarter marked Disney’s 10th consecutive increase in quarterly earnings.

“While it is gratifying, it is not surprising,” said Chief Executive Michael Eisner, who led the conference call with Wall Street analysts for the last time. Eisner, who is expected to step down Sept. 30, said investors “now have widespread evidence” that the turnaround plan that he mapped out two years ago was “reaping results.”

Disney released its numbers after the markets closed. Investors had been expecting strong results, bidding up Disney’s shares 73 cents to close at $26.14 in regular trading. In after-hours trading, however, the shares fell 39 cents to $25.75.

Some analysts had anticipated that the company would sell more videos and notch even higher revenue. Prudential analyst Katherine Styponias, for example, had predicted that Disney would bring in $7.87 billion -- $151 million more than it actually did.

Disney is the latest entertainment company to report softer sales in home entertainment. Revenue in its studio entertainment segment fell 15% to $1.5 billion. Operating income decreased by $62 million, creating a loss of $34 million.

Last year’s third quarter was buoyed by the video sales of Pixar Animation Studios’ “Finding Nemo” and Miramax’s “Kill Bill: Vol. 1” and “Cold Mountain.” Although the just-concluded quarter had such hits as “National Treasure” with Nicolas Cage and Pixar’s “The Incredibles,” there were “not as many big titles,” Chief Financial Officer Tom Staggs said.

Disney’s incoming chief executive, Robert Iger, told analysts that the company was rethinking its video strategy and the amount it spent on marketing. Executives have noticed that consumers are quick to decide what videos to buy, mirroring a pattern seen at the box office.

If videos “don’t move in the first month, they don’t move at all,” Iger said. “We’re taking a hard look at our marketing spending and the titles we release.”

Disney’s standouts in the third quarter were its media networks. Revenue for that segment increased 16% to $3.4 billion. Operating income jumped 48% to $998 million, helped by higher affiliate fees from cable companies to carry the ESPN sports channels and ABC’s prime-time ratings resurgence.

Operating income attributed to cable networks grew 38% to $729 million, compared with $529 million for the prior year.

ABC’s comeback, fueled by such hits as “Desperate Housewives” and “Lost,” also helped Disney’s bottom line. Operating income in the broadcasting unit nearly doubled to $269 million. ABC’s strong performance was partially offset by higher production costs as programmers ordered more pilots for the new fall season.

Disney’s parks and resorts revenue grew 7% to $2.4 billion and operating income increased 6% to $448 million. The gains came from higher attendance at Disneyland, which is celebrating its 50th anniversary, and greater guest spending at the company’s parks in Florida and Anaheim.

Eisner spent little time during the conference call dwelling on his 21-year tenure, during which he turned the moribund studio into an entertainment colossus. When an analyst asked whether he would have a continuing role at Disney, Eisner said he would remain the largest individual shareholder and be a “cheerleader” for Iger, Staggs and “the rest of the cast members.”

Eisner then said he grew restless with leisure pursuits associated with retirement. He said he didn’t like fly-fishing and “I get bored after 13 holes of golf.”

“I suppose that I will be doing something. What that is I have no idea,” Eisner said. “How’s that for a non-answer?”