Disney Profit Dips 6.7% on Shift in Receipts for ESPN

Walt Disney Co., the world’s biggest media company, said fourth-quarter profit fell 6.7 percent, missing analysts’ estimates, after a shift in income from cable operators whose payments were recorded earlier in the year.

Net income shrank to $835 million, or 43 cents a share, from $895 million, or 47 cents, a year earlier, Burbank, California-based Disney said today in a statement. Excluding one-time items, profit fell to 45 cents, compared with 47-cent average of 25 analysts’ estimates compiled by Bloomberg.

Disney recorded revenue from pay-TV services for ESPN in the quarter ended June 30, sooner than in 2009, resulting in a drop in the latest period. The film studio posted a profit of $104 million, reversing a year-ago loss, on box-office sales of “Toy Story 3” and revenue from the “Iron Man 2” DVD.

“On the revenue side, the big miss was at the media networks, with both broadcast and cable segments weaker than we expected,” said David Joyce, an analyst at Miller Tabak & Co. in New York who recommends buying the stock. “On the operating income side, the biggest miss was at the film studio, where we expected more based on the strength of ‘Toy Story 3.’”

Sales fell 1.3 percent to $9.74 billion in the period ended Oct. 2, missing the $10 billion average of 20 analysts’ estimates compiled by Bloomberg. Results included a restructuring cost of $58 million, or 2 cents a share.

Disney, also the world’s biggest theme-park operator, rose 68 cents to $36.60 in extended trading. The stock dropped $1.06 to $35.93 in regular New York Stock Exchange composite trading after the report was released early. Disney has advanced 11 percent this year. The company said it is investigating how the information became available.

Cable Advertising

Revenue from cable networks, including ESPN and Disney Channel, slid 6.2 percent to $3.13 billion because of the shift in pay-TV revenue. Income dropped 28 percent to $1.07 billion, also a result of the swing.

ESPN advertising sales rose 19 percent in the quarter, Chief Financial Officer Jay Rasulo said on a conference call. Fees paid by cable operators increased 9 percent in the period and 10 percent for the year, he said. Those fees will be higher in fiscal 2011.

Operating profit at the broadcasting division, led by the ABC network and local TV stations, jumped to $147 million from $2 million a year earlier. Revenue slid 7.5 percent to $1.29 billion, the company said. Adjusted for the extra week, ad sales at Disney’s ABC stations was 26 percent higher than a year ago, the company said.

‘Toy Story’ DVD

“Toy Story 3” and DVD revenue from “Iron Man 2” contributed the bulk of the film studio’s $104 million in operating profit, compared with a $13 million loss a year ago. “Toy Story 3,” the biggest U.S. movie of the year, has collected $1.06 billion in worldwide box-office sales, according to Box Office Mojo, an industry website. Studio revenue increased 6.4 percent to $1.59 billion.

“Toy Story 3” DVD sales will do “quite well,” Chief Executive Officer Robert Iger said on the call, without providing a specific estimate. He said 25 percent of “Toy Story 3” buyers have opted for Blu-Ray versions and of those customers, 80 percent chose more expensive discs that come with a digital copy of the movie, he said.

Theme-park revenue declined almost 1 percent to $2.82 billion as the company continued to reduce bargains used during the U.S. recession to bolster attendance. Profit fell 8.1 percent to $316 million.

Attendance at U.S. theme parks fell 6 percent in the period. Adjusted for the extra week, attendance would have risen 1 percent, Rasulo said. Advance bookings at its U.S. operations are 5 percent higher than a year earlier, he said.

Capital Spending

The company said capital spending will rise by $1 billion in fiscal 2011 due to theme park expansion and the addition of new cruise ships. The company spent $2.11 billion in the year just ended. Disney also expects retirement costs to rise by $100 million this fiscal year.

Disney’s consumer products unit increased profit 22 percent to $184 million as sales grew 13 percent to $730 million. The interactive unit narrowed its loss to $104 million as revenue gained 20 percent to $188 million.

Iger said Disney is investing less in producing console games and more in casual online video games. The company is focused on making its interactive division profitable, he said.

“I would be disappointed if we continue to lose a significant amount of money in those businesses, and if we do, I would imagine we will have to redirect in some form,” Iger said. “We don’t want to be in this business if we’re not going to be able to make money.”

To contact the reporter on this story: Andy Fixmer in Palm Springs, California, at afixmer@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net;

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