Disney's Net Income Boosted by Networks

By Claire Hoffman

May 10, 2006 12 AM PT

Times Staff Writer

Walt Disney Co. boasted a 12% increase in quarterly profit Tuesday, as results from the ABC network, sports channel ESPN and its theme parks more than offset a weak quarter by its movie studio.

Disney’s $733-million net income, or 37 cents a share, in its fiscal second quarter easily trumped estimates of analysts surveyed by Thomson Financial, who had expected 31 cents.

Revenue for the Burbank entertainment giant in the period ended April 1 rose 3% from a year earlier to $8.03 billion.

ABC benefited from the prime-time hits “Desperate Housewives,” “Lost” and “Grey’s Anatomy,” while ESPN continued churning profit. Overall, Disney’s media network division posted a 20% increase in quarterly operating income, to $969 million.

“The media networks really took the ball here in a major way for the quarter just ended,” said independent media analyst Harold Vogel.

But studio results suffered because DVD sales of “Chicken Little” and “Bambi II” failed to match the success of last year’s DVD release of “The Incredibles.” As a result, Disney’s studio operations suffered a 39% decrease in operating profit, to $147 million.

“We knew we were going to have tough home video comparisons because we had ‘The Incredibles’ last year,” Chief Financial Officer Thomas O. Staggs said. “You are going to see much stronger comparisons in the second half of the year.”

Staggs emphasized that the disproportionate success of the second quarter last year made this year’s studio profit seem small. Staggs said he was optimistic about the prospects of the upcoming “Cars” from Disney’s newly acquired Pixar Animation Studios, as well as the “Pirates of the Caribbean: Dead Man’s Chest” sequel.

Adding to Disney’s cheer, high gasoline prices didn’t keep visitors from its theme parks, as operating income for the unit rose 17% to $214 million. Theme parks benefited from Disneyland’s 50th-anniversary celebration. Although Staggs acknowledged that there had been hiccups at Hong Kong Disneyland, which opened last year, he predicted that they would be short-lived.

Disney’s consumer products division, which includes video games and merchandise, saw its operating profit fall 8% to $104 million.

Several analysts said that Disney remained on track to meet its year-end goal of double-digit earnings.

On a conference call with analysts, Chief Executive Robert Iger noted that Disney formally completed its acquisition of Pixar last week. That deal gives former Pixar CEO Steve Jobs a 6.3% stake in the company and a seat on Disney’s board.

Iger called Disney “a true modern media company,” and emphasized its technological developments. Underscoring his point, Iger said he had logged on to ABC.com just before the earnings announcement to watch an episode of “Desperate Housewives” from his computer.

“I think what this portends is a real integrated sales process where the network sells not just the initial platform on broadcast television but the new platforms and things like ABC.com and elsewhere,” Iger said.

Since taking over from Michael Eisner last year, Iger has sought to position the company as a leader in technological innovation -- offering some of the company’s TV shows to be watched on the Web or be downloaded from Apple Computer Inc.’s iTunes Music Store.

“He’s made it very clear that he’s going to experiment and take risks, and some of them are going to pan out and some of them aren’t,” said Anthony Valencia, an analyst with institutional investor TCW Group. “The culture was so risk averse before. For these companies to surprise [Wall Street] in the long run will come from them doing things we hadn’t expected them to do.”

Analysts said that although little of Iger’s much-heralded innovations had yet to make a mark on Disney’s earnings, it portends well for the company CEO to already have TV shows that people will want to watch -- whether it’s on TV, an iPod or Iger’s computer.

Disney’s results were announced after the market closed. In regular trading, its stock rose 81 cents to $29.58. After hours, the stock added 42 cents to $30.

(BEGIN TEXT OF INFOBOX)

Keys to Kingdom

Disney’s operating income by segment, second fiscal quarter

(In millions)

Going up. . .

Media networks

2005: $806

2006: $969

Parks and resorts

2005: $183

2006: $214

. . .going down