Disney Profit Beats Views as Interactive Unit Posts Gain

Feb. 6 (Bloomberg) -- Bloomberg's Julie Hyman examines the segments that drove first-quarter results for the Walt Disney Company. She speaks on Bloomberg Television's "In The Loop."

Walt Disney Co., the world’s largest entertainment company, posted first-quarter earnings that beat analysts’ estimates as the interactive unit registered its first profit and new theme-park attractions drew more tourists.

Profit excluding items was 79 cents, Burbank, California- based Disney said yesterday in a statement, beating the 77-cent average of 26 analysts’ estimates compiled by Bloomberg. Sales in the quarter ended Dec. 29 rose 5.2 percent to $11.3 billion, topping estimates of $11.2 billion.

The gain from interactive, along with higher profit from parks and the ABC broadcast unit, partly countered lower earnings from films and cable TV. Disney said capital spending on its resorts business, including a new cruise ship launched last year, is sparking attendance and revenue.

“All this investment they’ve been making in parks and resorts starts to pay off,” said Robin Diedrich, an analyst with St. Louis-based Edward Jones. “We’re seeing a pretty good return here.” Diedrich recommends buying the stock.

Robert Iger, Disney’s chairman and chief executive officer, said on Bloomberg Television yesterday the company may make two movies based on “Star Wars” characters “recognizable to everyone.” Filmmakers Lawrence Kasdan and Simon Kinberg are working on the films.

Disney previously announced plans for a new “Star Wars” trilogy last year in connection with the $4.05 billion purchase of Lucasfilm, with the first reaching theaters in 2015.

Net Income

First-quarter net income declined 5.6 percent to $1.38 billion, or 77 cents a share, from $1.46 billion, or 80 cents, a year earlier, reflecting lower film studio results. Last quarter’s results included 2 cents in costs related to Disney’s interest in Hulu, the online TV service, and litigation.

Disney rose 2.7 percent to $55.78 in extended trading yesterday. The stock gained 0.7 percent to $54.29 at the close in New York and advanced 33 percent last year, the third-best performer in the Dow Jones industrial average, which gained 7.3 percent in 2012.

The interactive unit, which produces games and runs websites, posted income of $9 million, the first since the company began breaking out results in 2009. That compared with a loss of $28 million a year earlier.

Iger had pledged the money-losing division would be profitable this fiscal year. Last week the company closed the Junction Point video-game operation in Texas to cut costs.

Interactive Outlook

The unit will post a loss again this quarter because of investments in Infinity, a new video-game system Disney unveiled last month, Iger said yesterday on a conference call. Retailer interest in the product was “very strong,” he said, and revenue will begin to flow in the third quarter.

Operating income at Disney’s largest and most profitable unit, its television networks, rose 2 percent to $1.21 billion, with ABC posting a 16 percent gain and cable income declining 2 percent on higher programming expenses, the company said. Revenue rose 7 percent, led by the cable networks that include ESPN and the Disney Channel.

Disney is looking to exit a money-losing ESPN venture in the U.K., Chief Financial Officer Jay Rasulo said on the call.

Profit at the namesake parks and resorts, the company’s second-largest business, increased 4 percent to $577 million, the company said, as the division registered a 7 percent rise in revenue. Attendance at U.S. parks rose 4 percent for the quarter, while guest spending increased 6 percent.

So far this quarter, domestic resort reservations are up 4 percent from a year ago, Rasulo said.

Studio Results

Film studio profit plunged 43 percent to $234 million, reflecting declines in both theatrical and home entertainment businesses, Disney said.

Profit from the consumer products unit, which sells licensed characters such as those from the “Avengers” film, rose 11 percent to $346 million on sales that grew 7 percent.

During the quarter, Disney also reached an agreement granting Netflix Inc. exclusive streaming rights to its movies starting with theatrical releases in 2016.

The multiyear accord gives Netflix, the world’s largest online video service, rights to movies from Disney and the company’s Pixar and Marvel operations, along with those of Lucasfilm. Some of Disney’s direct-to-video releases will be available on the service starting this year.

Iger said on the call that he doesn’t believe Netflix viewing will encourage consumers to drop cable TV service.

“This is a movie play,” Iger said. “There are limitations in terms of when the movies are available and how many there are.”

To contact the reporter on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net

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

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