Disney downgrade

Wall Streeters lower estimates for earnings

NEW YORK — Wall Street analysts have begun yet another round of estimate reductions for Walt Disney Co.’s fiscal 1998 earnings, highlighting how the House of Mouse is more exposed than other entertainment majors to the global economy and problems in Asia.

The lower earnings expectations are expected to keep Disney stock weak in coming weeks. Disney has fallen 35% since its peak in April, much more than the decline shown by other showbiz majors such as Time Warner and Viacom, and it fell $1.25 Wednesday to $27.87 amid an overall market sell-off.

Merrill Lynch analyst Jessica Reif Cohen cut her estimate for Disney’s fiscal 1998 full-year earnings by 3¢ a share to 93¢, or $1.9 billion in total, following a similar reduction Tuesday by Goldman Sachs analyst Richard Simon. Other analysts are expected to cut estimates in coming days.

Both Reif Cohen and Simon singled out the impact of the Asian economic slump on Disney’s consumer products business as one of the factors hurting the company’s expected profits, as well as lower growth expected from its domestic theme parks business.

On the other hand

In contrast, analysts are raising their earnings estimates for the other three showbiz majors — Time Warner, News Corp. and Viacom. The earnings reductions are “very much an individual thing for (Disney) right now,” Reif Cohen said.

Making it worse is that analysts have had to repeatedly cut their estimates for Disney in recent months, bringing down their prediction for the year ending Sept. 30 by a total of 12%. Disney is still expected to show growth of about 8% over fiscal 1997, but that is well below the 15%-20% growth rate usually posted by the company.

In his note to clients, Goldman’s Richard Simon noted that while he remained “guardedly optimistic about Disney’s long-term prospects, the cumulative burden of the recent earnings disappointments have taken their toll” on valuation levels for the company.

Simon noted the price slide and said that when he first started to cut his estimates for Disney’s earnings in May, “we did not anticipate as rapid or severe a series of subsequent reductions.”

Other factors

Both Reif Cohen and Simon said the division suffering the most from profit erosion is creative content, which includes both the film studio and consumer products.

Not only is the Asian slump hurting the merchandising business, but the analysts predicted that the consolidation of Disney’s film labels will have short-term costs before longer-term cost savings kick in next fiscal year.

Precisely how much of the lower growth in creative content is due to Asia is not clear, Reif Cohen said. Disney said in July that the Asian slump had squeezed its consumer products business in its third quarter, which ended June 30, but it did not quantify the impact at that time.

Disney usually guides analysts on earnings estimates, but Reif Cohen said Disney had not provided any guidance on its earnings this time around. A Disney spokesman declined comment.

Predictions of profit growth from Disney’s theme parks division have also been trimmed because of the impact of the new Animal Kingdom park on Disney World’s older parks, the analysts said.

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