Disney’s Films and Resorts Help Its Earnings Jump 39%
Walt Disney Co. on Wednesday posted its strongest quarterly performance since Chief Executive Robert Iger took over last October, as rising box-office and theme park receipts helped boost profit 39%.
Disney’s fiscal third-quarter earnings follow strong increases in each of the two prior quarters, and the Burbank media giant forecast a robust fourth quarter as ticket sales from summer blockbusters “Cars” and “Pirates of the Caribbean: Dead Man’s Chest” lift the bottom line.
“Creative and brand strength, the application of technology and globalization are the central elements of our strategy,” said Iger, who ascended to the top job after longtime CEO Michael Eisner retired last year.
Analysts debated whether Disney could maintain its momentum.
Sanders Morris Harris analyst David Miller noted that in previous quarters “there was always enough for bulls and bears to argue about, with the bulls generally winning.”
“But this was an unadulterated bull win,” he said. “It’s really tough to find a flaw.”
That concerns Sanford C. Bernstein & Co. analyst Michael Nathanson, who said “this is approaching ‘as good as it gets’ time right now.”
Disney shares fell 15 cents to $28.83.
In the quarter that ended July 1, Disney reported net income of $1.13 billion, or 53 cents a share, up from $811 million, or 39 cents, a year earlier. Revenue rose 12% to $8.62 billion.
Chief Financial Officer Tom Staggs said during a conference call that he didn’t expect any material financial effect on Disney after reports of possible stock-option manipulation at Pixar Animation Studios, which Disney acquired in January for $7.4 billion.
Disney showed improved results across most of its business units, with the biggest turnaround at the movie studio. Until recently, live-action and cartoon units had fared so poorly that Disney laid off workers, trimmed its production schedule and bought Pixar.
Movie and television studio entertainment revenue surged 17% and turned around from a year-earlier loss in that division to an operating profit of $240 million, even before an estimated $100 million in annual savings from the job cuts takes hold. A year earlier, Disney had added expenses from the distribution of Miramax films.
The unit was helped by sales of 18 million DVDs of the movie “The Chronicles of Narnia: The Lion, the Witch and the Wardrobe.” In its current quarter, Disney is looking forward to returns from “Cars” and “Pirates.” The swashbuckling sequel has racked up $790 million at the box office worldwide, making it Disney’s highest-grossing film ever.
Parks and resorts profit rose 26% to $549 million on an 11% increase in revenue, but Disney executives cautioned that theme park attendance in the fourth quarter would be flat as celebrations of the 50th anniversary of Disneyland end. Disney has also succeeded in getting more money out of each theme park visitor, in part by promoting overnight stays at its resorts.
Higher fees from cable companies to carry ESPN helped push cable and broadcast revenue up 10% to $3.7 billion and profit up 5% to $1.2 billion.
Some analysts had been expecting even stronger performance at the cable and broadcast unit, but expenses for ABC pilots and $150 million spent so far on disappointing ESPN-branded mobile phones weighed on net income. Iger said new handsets and a change in financial terms might help the phone offering.
A boom in licensing, especially for goods related to “Cars,” widened Disney’s profit margin in consumer products, which reported a 69% gain in operating income to $105 million.
Iger cited “Cars,” which was made by Pixar, as an example of Disney’s focus on products that work across a number of divisions and have international appeal. He said investors “shouldn’t be surprised to see Cars-based attractions in one or more of our theme parks around the world.”
DVD sales of “Cars” and “Pirates,” along with next summer’s planned theatrical release of the third in the “Pirates” series, should keep some big financial scores coming.
Iger said a reinvention of the Disney.com website should push Internet revenue past the current annual level of about $500 million. He said talks about an alliance with a Web portal such as Google Inc. or Yahoo Inc. had dissipated after Disney decided it wanted to control advertising and customer relations.
Disney finance chief Staggs said that the company in general preferred to control the destiny of its investments. Disney said Wednesday that it had agreed to sell its 50% stake in Us Weekly to magazine co-owner Jann Wenner for $300 million, more than seven times what it invested in 2001, and Staggs said that other joint investments could also be unwound at the right price.
Staggs wouldn’t say whether more job cuts were being considered in the 2007 budgeting process now underway. But he said “there’s still room for efficiency in our base business, and we’ll continue to go after that.”
Jessica Reif Cohen, an analyst at Merrill Lynch & Co., said that although growth may slow in 2007, the improving profit margins have earned Disney executives breathing room.
“To the extent that top line numbers slow down a bit, they will be forgiven,” Cohen said. “They’re dealing from a position of strength.”