- LOS ANGELES (Reuters) - Entertainment
giant Walt Disney Co. DIS.N took investors on a downhill ride on Thursday,
as profits fell sharply in its third quarter due to weakness at its theme
parks, where it warned of signs of further softening.
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- Disney shares plunged 8 percent to $15.50 in after-hours
trading on the Island system, after the company reported a 17 percent drop
in theme park operating income during its latest quarter and cautioned
about the fourth.
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- The steep drop came on the heels of a 5-percent decline
during the regular trading day, before the results were announced, when
shares fell 90 cents to $16.83 on the New York Stock Exchange.
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- Burbank, California-based Disney reported net income
of $364 million, or 18 cents per share, for its third fiscal quarter ended
June 30, compared with $527 million, or 25 cents per share, a year earlier,
adjusted for accounting changes.
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- Quarterly revenue fell 3 percent to $5.8 billion from
$5.96 billion in the year-ago quarter.
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- Disney reported pro forma income of $343 million, or
17 cents a share, compared with $610 million, or 29 cents a share, a year
earlier.
-
- That number was in line with the average analysts' estimate
of 17 cents per share as compiled by market research firm Thomson First
Call, with estimates ranging from 12 cents to 19 cents. The average revenue
forecast was $5.9 billion.
-
- While the earnings were largely in line with forecasts,
analysts were disappointed by the third-quarter performance in the theme
parks division -- Disney's biggest single profit engine, which generated
40 percent of operating earnings last year.
-
- Disney said third-quarter revenues for its parks and
resorts division dropped 5 percent from last year to $1.8 billion, while
the segment's operating income fell 17 percent to $467 million.
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- SOFTENING BUSINESS
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- Even more disheartening, Disney executives said its parks
business has shown new signs of softening following a steady improvement
from post-Sept. 11 lows.
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- "So far this quarter, concerns about terrorism and
economic uncertainty reflected in declining consumer confidence and softness
in GDP growth are impacting presentation to our parks," Disney's chief
financial officer, Tom Staggs, said in a conference call.
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- Staggs said fiscal fourth-quarter reservations on the
books were down about 10 percent, compared with a 6 percent business decline
in the third quarter. He said the worsening situation was a major reason
why Disney lowered its fiscal fourth-quarter outlook.
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- "Given these trends, we now expect that the (earnings
per share) for (the fourth quarter) will be down somewhat versus the prior
year," he said.
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- The third-quarter theme park results were largely expected,
but the negative outlook will lead many analysts to lower their current
estimates for Disney's fourth quarter, said Jeff Logsdon, an analyst at
Gerard Klauer Mattison.
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- "Investors were surprised by Disney's caution about
fourth-quarter theme park bookings and potentially earning or operating
income," he said. "I would expect estimates to come down by 5
to 7 cents (per share) in the fourth quarter."
-
- Outside theme parks, Disney's results were largely in
line with analysts' expectations. Both its film and media networks divisions
reported steep drops in earnings, the former due to disappointing results
for several key films and the latter due to continued weakness at Disney's
struggling ABC network.
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- During the quarter, the media networks group saw its
revenues decline 10 percent to $2.1 billion, while operating income tumbled
40 percent to $288 million.
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- The movie studio's division saw its revenues increase
3 percent to $1.4 billion. But operating income was off a whopping 66 percent
as the company's live-action movies like "Bad Company" failed
to perform at box offices compared to last year's hit, "Pearl Harbor."
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- Earnings aside, Disney also discussed several potential
corporate governance initiatives designed to boost investor confidence
amid the recent wave of accounting scandals. Among those, Disney discussed
an eventual expensing of stock options, as well as reduction in the size
of its board.
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