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Disney posts fourth-quarter profit of $1.77 billion, but misses on analysts' expectations

Disney posts fourth-quarter profit of $1.77 billion, but misses on analysts' expectations
Walt Disney Co. Chief Executive Robert Iger. (Ricardo DeAratanha / Los Angeles Times)

Walt Disney Co. reported a fourth-quarter profit of $1.77 billion, up 10% from a year earlier, but failed to deliver on analysts' expectations.

There were several weak spots for the company during the quarter that ended Oct. 1, with notable declines in box office sales, and advertising and affiliate fee revenue at ESPN.

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All four of the company's business groups posted lower operating income than the same quarter last year.

Analysts had expected the Burbank entertainment juggernaut to post earnings of $1.16 a share and revenue of $13.52 billion, according to Thomson Reuters. But Disney reported earnings of $1.10 a share and revenue of $13.1 billion, which was down 3% from a year earlier.

Still, Disney's stock rose nearly 3% in after-hours trading to $97.70. In regular trading Thursday, its shares had closed up 32 cents, or 0.3%.

After-market investors may have been reacting to comments made by Chief Executive Robert Iger on a conference call with analysts in which he projected earnings growth in 2017 and 2018. He also touted the company's strong performance in fiscal 2016, the results of which were reported Thursday too. The company delivered revenue of $55.6 billion, which was a 6% increase; and net income of $9.4 billion, a 12% increase.

Iger also discussed Disney's upcoming film slate, described his "bullish" perspective on ESPN and championed the early returns at Shanghai Disneyland, which has welcomed 4 million visitors since opening in June. And Chief Financial Officer Christine McCarthy took pains to note that the fourth quarter results were hurt by the fact that fiscal 2015 included an additional week of operations.

But the quarter was a tough one for Disney's studio group, which had been a strong performer during the prior three-month period, benefiting from the success of blockbusters "The Jungle Book," "Finding Dory" and "Captain America: Civil War."  It experienced a notable decline in the fourth quarter, undone by box office disappointments "Pete's Dragon," "The BFG" and "Queen of Katwe." It reported operating income of $381 million, a 28% drop. Revenue was up 2% to $1.81 billion.

The company's closely watched media networks group, which includes crown jewel ESPN, also had a difficult quarter. It posted operating income of $1.67 billion, down 8%. Revenue fell 3% to $5.66 billion. Within the group, the broadcast division posted operating income of $224 million, up 37%. Revenue rose 8% to $1.7 billion. But the cable division, which houses ESPN, recorded operating income of $1.45 billion, down 13% from a year earlier. Revenue for the group was down 7% to $3.96 billion.

Disney attributed the operating income decline at the cable division partly to lower advertising and affiliate revenue at ESPN, in addition to higher programming and production costs.

McCarthy said that ad revenue at ESPN was down 13% in the quarter, hurt in part by a "significant decrease" in advertising for daily fantasy sports leagues. (FanDuel and DraftKings, two prominent daily fantasy sports operators, have experienced drop-offs in business in the aftermath of increased scrutiny over their legality.)

Last year, Disney's stock plunged over concerns on Wall Street about smaller audiences for ESPN, which has lost more than 9 million subscribers since 2013, according to Nielsen data.

But Iger said the company had "a more bullish position" on the future of ESPN's subscriber base. "We believe that to some extent the causes of those losses have abated," he said.

Disney and Nielsen have also clashed over an estimate the information services company put out last month about subscriber losses at ESPN projected for November. Nielsen data showed the network losing 621,000 subscribers, but ESPN has questioned the figure, saying it doesn't include information from streaming television providers.

"Given the fact that what they provided was an anomaly and given the fact that it contradicted what other observers are seeing, we think it is important that more scrutiny is given to it," Iger said of the Nielsen estimate.

The parks and resorts group posted operating income of $699 million, down 5% from a year earlier. Revenue rose 1% to $4.39 billion, reflecting an increase in spending at Walt Disney World.

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Disney's consumer products and interactive group reported operating income of $424 million, which was down 5%. Revenue dropped 17% to $1.29 billion. Disney attributed the decline in revenue to the discontinuation of the Infinity video game line, which the company canceled in May. Lower operating income was attributed partly to a decline in merchandise licensing.

Iger also fielded questions about how the presidency of Donald Trump might affect Disney, whether the company might make a major acquisition in the aftermath of its recent $1-billion investment in streaming technology firm BamTech, and if he could provide details about the company's search for a CEO to replace him when his contract expires in 2018.

Iger offered few specifics in response to these queries, though he spoke firmly about how he felt it was unnecessary to provide much information about the Disney board of directors' progress in selecting his successor.

"I don't think there's necessarily a need for the board to provide any more details publicly about the process — except to say the process is ongoing, it's robust and we're all confident that it's going to result in the board choosing not only the right candidate [but also] the right candidate on a timely basis," he said.

Follow @DanielNMiller on Twitter for film business news.

UPDATES:

3:54 p.m.: This article was updated with additional comments from Disney CEO Robert Iger.

This article was originally published at 2:15 p.m.

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