Aug. 1 (Bloomberg) -- Walt Disney Co., the second-largest U.S. media company, said third-quarter profit increased 4.7 percent, fueled by higher advertising rates at the ABC television network and sales of merchandise from films.

Net income rose to $1.18 billion, or 57 cents a share, from $1.13 billion, or 53 cents, a year earlier, Burbank, California- based Disney said today in a statement. Sales rose 6.7 percent to $9.05 billion. Disney also said today it acquired Club Penguin, a children's Web site, for $350 million and may pay another $350 million if the founders meet financial goals.

ABC increased advertising rates for shows such as ``Dancing with the Stars,'' second in viewers only to Fox's ``American Idol,'' according to Anthony Noto, an analyst with Goldman Sachs Group Inc. in New York. Licensing revenue from toys, clothing and books based on ``Pirates of the Caribbean'' and Pixar's ``Cars'' also increased profit.

``This really meets what I think broad expectations were and what our expectations were,'' Mike Simonton, senior director of media and entertainment at Fitch Ratings in New York, said in an interview. ``Most people have been trying to determine whether or not Disney can keep up this run of strong performance.''

Shares of Disney fell 23 cents to $33.60 in extended trading. They rose 83 cents, or 2.5 percent, to $33.83 at 4:01 p.m. in New York Stock Exchange composite trading and are little changed this year, while the Standard & Poor's 500 Index has gained 3.4 percent. Shares of Time Warner Inc., the world's largest media company, have dropped 14 percent.

Estimates

Excluding some costs, profit totaled 58 cents in the quarter ended June 30, beating the 55-cent average of 18 analysts' estimates compiled by Bloomberg. Sales beat the $9.01 billion average of 13 analysts' estimates compiled by Bloomberg, rising from $8.47 billion a year earlier.

Earlier today, New York-based Time Warner reported a 5.2 percent gain in second-quarter profit on higher revenue from its cable systems. The shares fell after sales at the AOL Internet unit plunged 38 percent. Time Warner also said revenue from the Warner Bros. studio declined.

Disney's operating profit from broadcasting, which includes ABC and both Disney and ESPN radio, more than doubled to $295 million on 8.9 percent higher sales of $1.51 billion, the company said. ABC's profit gain probably outpaced all other broadcast networks, according to Noto, who has a ``buy'' rating on the shares and doesn't own any.

ABC Shows

``Disney's results are largely attributable to strong ABC prime-time shows,'' said Robin Diedrich, an analyst at Edward Jones & Co. in St. Louis, who rates the shares ``buy'' and doesn't own them. ``In recent months advertising prices were being pushed up double-digits and even higher.''

Profit from cable channels, including ESPN, fell short of Noto's estimate. Earnings increased 9 percent to $1.06 billion on a 4.5 percent rise in sales to $2.31 billion, the company said. He had projected 11 percent growth in profit and a 13 percent sales gain. Time Warner reported higher subscription and advertising revenue at its cable channels.

Disney said profit from consumer products, including the video-game business, rose 12 percent to $118 million, while sales advanced 23 percent to $549 million.

At Disney's film studio, earnings fell 20 percent to $192 million, reflecting strong results last year from the DVD release of ``Chronicles of Narnia: The Lion, the Witch and the Wardrobe.'' Disney also had to account for the full cost of Pixar's ``Ratatouille'' in the quarter although the film was shown for only two days in the period.

Sales rose 4.1 percent to $1.78 billion, the company said.

`Pirates'

``Pirates of the Caribbean: At World's End,'' the third film of the Disney series, has garnered $947.5 million in worldwide ticket sales, the most of any movie this year, according to Burbank, California-based Box Office Mojo LLC, which put the cost at $300 million. As of July 29, the film helped boost Disney to third place among Hollywood's six-largest studios.

Disney will sell ``At World's End'' on DVD starting Dec. 4.

Sales at Disney theme parks gained 6.4 percent to $2.9 billion, while profit increased 13 percent to $621 million, the company said.

``They've had a few good years with some anniversaries and special events,'' said Diedrich. ``Comparisons are getting more difficult.''

The purchase of Club Penguin gives Disney a so-called virtual world Web site for children, expanding the company's interactive business.

The founders of Kelowna, British Columbia-based Club Penguin, Lane Merrifield, Dave Krysko and Lance Priebe, will stay on, Disney said in a statement. Club Penguin, a snow- covered virtual world inhabited by penguin avatars, has grown to 700,000 paid subscribers.

To contact the reporter on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net

Last Updated: August 1, 2007 19:15 EDT