Disney Analysts Raise Forecasts After ‘Avengers’ Debut

Disney Analysts Raise Forecasts Following $207 Million `Avengers
Jeremy Renner, Chris Evans, Scarlett Johansson perform in "The Avengers," from Walt Disney Studios. Photographer: Zade Rosenthal/Marvel via Bloomberg

Captain America and Iron Man have analysts who cover Walt Disney Co. scrambling.

David Joyce, a Miller Tabak & Co. analyst, yesterday raised his fiscal 2012 profit estimates for Burbank, California-based Disney, which reports second-quarter results today, citing the record $207.4 million box-office debut of “Marvel’s The Avengers” in the U.S. and Canada. Martin Pyykkonen, a Wedge Partners Corp. analyst, Tuna Amobi of Standard & Poor’s, and Brett Harriss, with Gabelli & Co., are considering revisions to profit forecasts for the world’s largest entertainment company.

The film’s performance will dominate Disney’s earnings call with analysts after U.S. markets close, even though its initial impact won’t be clear until results for the current third quarter are reported in August. Analysts will focus on how the company will use the film’s success to boost sales through Disney’s television, theme-park and merchandise arms.

“I’m working on those models as we speak,” Amobi, who is based in New York, said in an interview. “There are several quarters you’re likely to see affected positively by this.”

Disney is expected to report second-quarter profit of 55 cents a share, the average of 22 analysts’ estimates compiled by Bloomberg, and an increase from 49 cents a year earlier. The company has said it may post an operating loss of as much as $120 million at its film studio after the March science-fiction flop “John Carter.” Disney’s television networks and theme parks made up 87 percent of its $8.83 billion in operating income last year.

Raising Estimates

Analysts will be looking to see an “Avengers” boost in the third quarter and full year, when earnings are expected to rise 44 cents to $2.96 per share.

Joyce, based in New York, raised his third-quarter profit forecast for Disney by 3 cents a share to 90 cents, a penny below the 91-cent average of 28 estimates. The film is already profitable, he said.

Disney rose less than 0.1 percent to $43.85 at 9:37 a.m. New York time. The shares jumped 2.1 percent yesterday, after “The Avengers” blew past estimates for opening-weekend ticket sales of $150 million to $170 million. The shares have advanced 17 percent this year before today.

The movie alone may generate as much as $1.35 billion in theaters, suggests Drew Crum, an analyst with Stifel Nicolaus & Co. With a more modest $1.1 billion box-office take, it would return as much as $250 million in profit, including television rights to show the movie, home-video sales and consumer products, he wrote in a note yesterday.

That doesn’t include the impact on older Marvel films. “The Incredible Hulk,” released in 2008 by Comcast Corp.’s Universal Pictures, jumped to No. 20 on the movie-rental chart on Apple Inc.’s iTunes yesterday, following “The Avengers” record-setting opening weekend. The film wasn’t previously ranked.

TV Shows, Rides

Even harder to calculate is the potential for spinoff products, such as new television shows and theme-park rides, and the impact on future films such as “Iron Man 3,” and sequels to “Thor” and “Captain America.”

With $654.8 million in worldwide ticket sales to date, “The Avengers” has already surpassed the total of each of the earlier movies in their entire box-office runs.

The film’s performance underscores the durability of Marvel characters and Disney’s ability to capitalize on the brand, said Dave Hollis , executive vice president for distribution at Walt Disney Studios.

Beyond the box office, there is a “ton of enterprise-wide value for ancillary business, whether it be consumer products or the networks,” Hollis said in a May 6 interview.

Disney’s film unit, which generated $618 million in operating profit in its most recent fiscal year, may now be on a path toward a potential $1 billion in annual earnings, according to Matthew Harrigan, an analyst with Wunderlich Securities in Denver, who rates the stock a hold.

Future Periods

Disney, led by Chief Executive Officer Robert Iger, doesn’t typically issue profit forecasts when it reports earnings, making assessments for future periods more difficult. On conference calls, the company often gives information on specific units or products. Then it is up to the analysts to draw conclusions.

Among the variables is how much of the bounty from “The Avengers” and “Iron Man 3,” scheduled for May 2013, that Disney must share with Viacom Inc.’s Paramount Pictures. After it bought Marvel Entertainment in 2009 for $4.2 billion, Disney bought the rights to the two movies for at least $115 million, Crum said.

Pyykkonen, who is based in Denver and doesn’t issue buy or sell recommendations, said he’ll be listening on the call for details about the Paramount agreement.

Hulk on TV

Television offers possibilities as well. Paul Lee, president of ABC Entertainment, said last year he wants to develop a Marvel character into a network TV show.

The Hulk, which critics said stood out in “The Avengers” with Mark Ruffalo’s portrayal of the brooding, conflicted superhero, may present that opportunity, said Tony Wible, an analyst with Janney Montgomery Scott in Philadelphia.

Wible also said he expects to see more Marvel characters on Disney XD, a cable channel directed at boys. The company already runs an Avengers cartoon there.

At Disney’s interactive unit, an Avengers-themed game for Facebook users has attracted 7.1 million monthly players, according the research site AppData.

Exploiting the characters at Disney’s U.S. theme parks may be trickier. Universal Studios, which runs the Marvel Super Hero Island at its Islands of Adventure park in Orlando, controls the rights east of the Mississippi River, Jay Carducci, a spokesman for Disney’s parks unit, said by telephone.

At Disney’s annual meeting earlier this year, Iger said the company had done preliminary design work on Marvel theme-park concepts.

“It’s our hope that in a few places around the world, Marvel characters will appear either in attractions or lands or in some form to provide entertainment like our Disney characters do,” he said.

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