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Wall Street sees Mouse in holding pattern

CFO Staggs sez co. is 'on track' as economy rebounds

The Mouse House continues to execute a department by department revitalization of the Magic Kingdom, though there’s a range of opinion over how well some of those business units are responding to the turnaround efforts.

“We’re on track,” says Tom Staggs, chief financial officer at Disney. “I think there’s more upside from here, but we’re on track.”

Part of the reason for unfulfilled potential at the Burbank conglom involves three divisions still awaiting clear evidence of the nation’s economic recovery.

Until then, advertising revenue won’t rebound completely at Disney’s media networks, and Mouse’s theme parks and consumer-products division continue to lag along with the nation’s consumer-confidence index.

It’s probably no coincidence that Disney has yet to find a buyer for its struggling Disney Stores chain.

“We’re early in the process,” Staggs says. “But there is significant interest from a large number of potentially interested buyers.”

Fortunately, Disney’s stock price has already started improving.

Shares have traded above $20 since setting a 52-week closing high of $22.56 on Aug. 14. The stock is up more than 25% since Jan. 1.

Wall Street is all over the place with its analysts’ ratings on Disney shares.

About a third are bullish, just over half are roughly neutral on the stock, and the balance are a bit bearish. Eight analysts have “buy” or “market outperform” ratings on the stock, forecasting solid future gains in the share price on top of the stock’s recent spurt.

Nevertheless, Disney’s corporate turnaround effort of the past couple years remains very much a work in progress.

“I’m most troubled by the media networks division,” offers David Miller, an analyst with the Sanders Morris Harris investment firm in Los Angeles.

“ESPN is probably their crown jewel asset (but) media buyers don’t really have very good things to say about the prospects for the ABC television network this year with the expection of the Tuesday night comedy block,” Miller says.

And even there, the Alphabet has retooled its linchpin “8 Simple Rules for Dating My Teenage Daughter” in the aftermath of star John Ritter’s sudden death, having recruited James Garner and Suzanne Pleshette into the cast. The upside is that sitcoms “Hope & Faith” on Friday nights and “My Wife and Kids” on Wednesdays have led their timeslots.

“There are eight new shows that will debut on the network this fall,” Miller notes. “It’s imperative at least one of them became a hit.”

Mouse execs are anxious to downplay the significance of the broadcast challenge.

“The two core brands are Disney and ESPN,” Staggs says. “ABC is an important brand, but we are quick to say ABC is a brand that isn’t as unique as the Disney and ESPN brands.”

As for theme parks, such businesses will always rise and fall with the relative health of the travel and tourism industries, Staggs says.

But he adds that Disney’s parks and resorts unit has operations “with a scale and scope unmathed by anybody in the industry.” As a result, the unit reps yet another area where the Disney brand represents real opportunity for growth, he says.

During the recent auction of Vivendi Universal’s entertainment assets, some wondered whether the Mouse would make a move on the U theme parks, but few believe there’s much prospect of such an ambitious acquisition.

“We will be selectively investing in rides and attractions,” Staggs demurs.

Elsewhere on the acquisitions front, Disney is a considered a bit of a laggard in the stations-group category.

The Mouse has just 10 owned-and-operated broadcast affiliates, compared with 34 at Viacom and 33 at Fox. Even more telling, Disney hasn’t a single market “duopoly,” a newly permitted arrangement involving the operation of two stations in certain single markets.

Wall Street greatly values the cost efficiencies to media groups from such duopolies. Viacom has nine and Fox eight.

Alternately, Disney has invested even more heavily than its media rivals in cable webs, including $5.3 billion purchase of ABC Family from Fox in 2001.

Mouse’s films studio “is the business that’s running really well for them right now,” Sanders Morris’ Miller says. “They’re really on a roll theatrically.”

Indeed, Disney captured the summer box office laurels with boffo runs for “Finding Nemo” and “Pirates of the Caribbean: Curse of the Black Pearl,” a solid perf from “Freaky Friday” and good enough numbers from “Open Range.” The winter will see big titles including “The Haunted Mansion” and “The Alamo” hit theaters, and 2004 will see the release of “Nemo,” “Pirates” and classic tooner “The Lion King” on DVD.

Disney will absorb prints and advertising costs for “Haunted Mansion” and “Alamo” in its current quarter – marketing costs hit congloms’ bottom lines earlier under the latest accounting regs – but Wall Street expects conglom to report solid profitability for the fiscal year ended Sept. 30.

“Our central focus is (to) continue to develop films and film franchises that we can leverage through all the distribution media and through the rest of the company,” Staggs says.

Disney aims to keep rein on costs, the CFO says. And, as with all things Disney, the film studio reps another opportunity for brand extension, he adds.

“We’ve increased our emphasis on the live-action films to build up the Disney brand,” Staggs says. “And ‘Pirates of the Caribbean’ would be the best example of that.”

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