Disney Profit Slides 32% on Ad, Film Studio Shortfall

Walt Disney Co., the second-largest U.S. media company, posted a 32 percent drop in fiscal first- quarter profit and will cut more jobs in response to the deepening U.S. recession. The shares fell in late trading.

Net income declined to $845 million, or 45 cents a share, from $1.25 billion, or 63 cents, a year earlier, Burbank, California-based Disney said today in a statement. Excluding a gain of 4 cents from the sale of two pay-TV services, profit was 41 cents, missing the 51-cent average estimate of analysts.

Disney will deliver “very significant” savings by restructuring and eliminating jobs, Chief Executive Officer Robert Iger said on a conference call. The company will choose films more carefully, spend less on marketing and cut DVD production costs, he said. Broadcast and cable television sales fell as advertisers bought fewer commercials at ABC and ESPN. Studio revenue tumbled on flagging DVD purchases.

“Things are decelerating more quickly now,” David Joyce, an analyst at Miller & Tabak Co. in New York, said in an interview. “Studio entertainment was the big miss. DVDs are getting a little weak as consumers pull back.”

The company will struggle to cut costs fast enough to counter declining revenue, said Joyce, who recommends the stock and doesn’t own it.

Disney fell $1.48, or 7.2 percent, to $19.14 in extended trading after the release. The shares gained 42 cents to $20.62 at 4:02 p.m. in New York Stock Exchange composite trading. They fell 30 percent last year.

Missing Estimates

Sales dropped 8.2 percent to $9.6 billion in the three months ended Dec. 27 from $10.5 billion a year earlier. Revenue missed the $10 billion average of 16 analysts’ estimates compiled by Bloomberg.

Disney, the world’s biggest theme-park operator, is the first of the large U.S. media companies to post results. Time Warner Inc., the world’s biggest media company, reports tomorrow and News Corp. follows on Feb. 5.

The company has already fired 200 employees at ABC and eliminated 200 unfilled jobs. ESPN eliminated 200 open positions, froze hiring through September 2010 and halted executive raises. The resort division offered voluntary buyouts to 600 executives.

“We must make efficiencies and become better at what we do,” Iger said on the call.

Labor Savings

Studio profit plunged 64 percent to $187 million on fewer top-selling DVD titles. Revenue fell 26 percent to $1.95 billion. Catalog sales and holiday releases including “WALL-E” and “The Chronicles of Narnia: Prince Caspian” failed to match the year-earlier results from “Pirates of the Caribbean: At World’s End,” “High School Musical 2” and “Ratatouille.”

Consumers grew more selective about buying DVDs as the economy worsened, Iger said. Disney will make fewer home-video releases and spend less producing DVDs, he said.

“Pressure on the business has only grown,” Iger said.

Theme-park profit declined 24 percent to $382 million on 3.9 percent lower revenue as Disney offered discounts on lodging and merchandise in Florida and Southern California. The promotions have been extended to Aug. 15.

Profit at the parks was also held back by a charge related to fuel-hedge contracts.

Park Bookings

Bookings through June are running ahead of a year earlier, Tom Staggs, chief financial officer, said on the call.

Profit from TV networks, Disney’s largest business, tumbled 29 percent to $655 million, with revenue dropping 5 percent to $3.9 billion. Industrywide, advertisers are cutting spending to cope with the U.S. recession.

ABC’s audience in the season that began in September was down 7.7 percent from a year earlier as of Jan. 25, according to Nielsen Co. data. Viewers between the ages of 18 and 49, a group coveted by advertisers, fell 10 percent.

ABC recorded a $60 million charge for bad debt in connection with the bankruptcy filing of Tribune Co., Staggs said on the call. ESPN has a $25 million reserve against money owed by Charter Communications Inc. The network will spend more developing new programs this year, he said.

Cable network revenue rose 1.7 percent to $2.45 billion as subscriber fees from cable and satellite TV operators countered falling advertising sales.

Ad sales at the ESPN sports networks fell a “high single digit” percentage as marketers including the auto industry reduced spending, Staggs said. ESPN’s biggest fixed cost is sports contracts, he said.

Profit from consumer products, the division that includes merchandise licensing, video games and the company’s retail stores, declined 7.7 percent to $265 million. Sales gained 18 percent, reflecting the acquisition of Disney outlets.

Disney reported interactive revenue and operating results for the first time. The unit had sales of $313 million, up 13 percent from a year earlier, and an operating loss of $45 million, compared with a gain of $13 million last year.


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