Disney posts stellar earnings
Studio division in slight slump
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While the conglom's three other segments all saw robust results, studio profits dipped 15% on an operating basis, despite Disney's recent hot run at the B.O. Execs blamed softness in homevid, especially given comparisons to year-earlier stalwarts "Cars," "Pirates of the Caribbean: Dead Man's Chest" and "The Little Mermaid" reissue. Revenue stayed flat at $2.6 billion.
Disney's largest operating unit, media networks, saw operating income rise 28% to $908 million on a 10% revenue gain to $4.2 billion. Ad revenues, execs said, are tracking ahead of the same period a year ago despite macroeconomic woes and the writers strike.
Total operating income in the frame ended Dec. 29 rose 15% from the year-earlier period to $2.25 billion, and revenues spiked 9% to $10.45 billion. The profit figure excludes gains from the sale in the year-earlier quarter of interests in the E! cable net and Us Weekly magazine and income from the now-discontinued ABC Radio ops. Net profit dropped 26% to $1.25 billion, due to the prior-year one-offs.
Chief financial officer Tom Staggs noted that when homevid is weaker and theatrical is stronger, release costs are higher and margins in the studio unit are thus squeezed. (Margins declined by 5%.) The reverse is usually true when homevid dominates.
"It's the natural course of business," he said. "You should not read into that."
Eager to offer some rosier studio news during a conference call with analysts, the company said "Toy Story 3" would be released in 2010, with retooled 3-D versions of the first two installments set for 2009.
Elsewhere, there was plenty of magic in the kingdom. Operating net income in the theme park and consumer product segments surged 25% and 38%, respectively.
Driving overall growth was the conglom's continued execution of its crossover branding strategy on hits such as "High School Musical" and "Hannah Montana." Several questions during the conference call addressed the challenge of franchise management, yielding occasionally surprising results.
For example, Iger said "Cars," widely considered a mildly disappointing B.O. opener even at $60.1 million in June 2006, has grown into a consumer products giant. Thanks to online games, a theme park attraction and a host of other items, the merchandise revenue from the pic is at a higher level now than when it was released.
Aside from Mickey Mouse, Winnie the Pooh and recent princess and pirate pushes, "Cars" has the "biggest potential for the longest period of time," Iger said. "You could see a sequel for 'Cars' because we believe in the value of the franchise," Iger said. The most recent Pixar title, "Ratatouille," rates as "a classic, but not a franchise," he added.
The company's results, which handily beat Wall Street forecasts, came after the close of a market session that saw the Dow plummet more than 370 points in the worst percentage drop since February 2007. Disney shares lost a bit more than 2% to $30.07, but they rebounded significantly in after-hours trading.
Mouse House stock is held up as a bellwether for consumer spending, which is a contentious metric as analysts and economists assess the turbulence that has hit financial markets and the U.S. economy.
Disney's theme park and cruise-ship businesses carry certain fixed costs, Staggs conceded, but "there are ways to dial costs up and down." Asked to comment on the bigger picture, Staggs said, "We're not going to forecast the economy. At this point trends don't tell us enough about how the rest of the year will unfold."
Unlike Rupert Murdoch and other News Corp. brass, who presided over a comparably strong quarterly earnings announcement on Monday, Iger was lukewarm about the annual TV upfronts ritual. He took care to distinguish between the process of selling upfront advertising and the glitzy, star-driven stage shows that often carry a hefty pricetag but no guarantee of dazzling media buyers.
"Advertisers are going to demand some kind of process, and I see us participating fairly aggressively in that process," he said. "How we present the schedule and what the schedules are, are up for discussion. But personally, the manner in which things are presented, the bells and whistles, the hors d'oeuvres, feels like a bit of an anachronism to me."
