Mouse defends firings even as profits pop

“Cars” is driving Disney to high-octane profits.

While “Pirates of the Caribbean: Dead Man’s Chest” came out in July and won’t show up in the results until the fourth quarter, company still saw massive gains in its fiscal third quarter, growing net income to $1.13 billion — an increase of 39% over the April-June frame last year.

Announcement of the sharply improved earnings came less than a month after Disney declared a belt-tightening, which resulted in the dismissal of some 550 employees.

Studio is also ratcheting down its slate to about 10 Disney-branded pics and two or three non-Disney branded movies per year.

After noting strong perf of “Cars,” topper Bob Iger said, “Our new approach makes particular sense when you consider the above-market returns we were able to earn on Disney-branded films.”

But while the “Cars” domestic rollout has had some serious torque, the pic’s post-June international release has sputtered in some key markets, in part because it was overshadowed by the “Pirates” sequel.

Studio was the main reason for the Disney jump: It swung to $240 million in operating income from a $44 million operating loss a year earlier.

“Cars,” which has earned $238 million domestically since its release, was not the only driver behind the studio’s success. Conglom also benefited heavily from homevid. DVD sales were up 9% in the quarter, fueled by “The Chronicles of Narnia: The Lion, the Witch and the Wardrobe,” which sold 18 million units.Revenue at the studio also spiked an impressive 17% to $1.7 billion.

Comparisons at the studio were skewed by the fact that while movies like “The Pacifier” and “Herbie: Fully Loaded” overlapped with parts of the comparable quarter last year, there was no major release on the level of “Cars” to fully dominate spring 2005.

Execs also noted that the belt-tightening moves “will benefit the entire company” because of how “it expands our global reach and provides far more significant opportunities for ancillary revenue.” Increases of nearly 70% in operating income at the consumer products division — driven by “Cars” merchandise — buttressed the point.

Call was first time Disney faced Wall Street since it announced the overhaul that will see it become an entertainment company that happens to make movies more than a traditional studio.

Analysts have generally been happy with the move, and chose not to scrutinize it Wednesday.

No one raised the point that, under the new system, there’ll be less risk from midrange films but more consequences if there’s a Disney-branded dud.

Company also flogged next year’s slate, noting the third “Pirates” pic as well as Pixar’s “Ratatouille,” which is part of the mad May ’07 release schedule, and pointed to DVD releases of “Cars” and “Dead Man’s Chest” as other drivers.

But the Mouse House disappointed Wall Street when it declined to make financial projections for next year.

While analysts cheered the quarterly numbers — numbers handily beat expectations — investors were more muted, sending the stock down 1%, including after-hours trading, to $28.67.

Unlike past quarters, call didn’t feature the scapegoating of the Miramax titles, though execs couldn’t resist a jab of sorts, with Staggs saying that numbers “benefited from less expensive Miramax titles vs. the prior year.”

Disney also continued its exit from the publishing biz. Company revealed it would sell its 50% stake in Us Weekly to Wenner Media for a neat $300 million, noting that the original investment cost only $40 million.

For the quarter, revenue went up 12% at Disney to $8.62 billion. Television was also a solid performer, with revenue up 10% to $3.74 billion and operating income up 5% to $1.15 billion.

Execs noted Internet revenue above the billion-dollar mark at $1.2 billion but later acknowledged that without theme-park packages Disney sells online, number came in just a little bit over $500 million.

Analysts were most skeptical about the company’s digital strategy, asking if it will sign up more new-media partners or if execs felt that digital properties can be monetized better.

Mouse Housers responded that the company is engaging in a massive redesign for Disney.com and that studies showed that viewer recall for ads in online shows is more than triple that of TV ads.

Vidgame arena was also tagged as a priority for expansion.

And company acknowledged that there had been discussions of a “broad sweeping partnership with one of the broad aggregators” like Yahoo! or Google but that it didn’t pan out.

Company did note “disappointing” results for its ESPN mobile offering but did not suggest it would stop selling the service.

Asked on the call with analysts how a brewing controversy over Pixar options would reflect on new parent Disney, execs kept it dryly financial.

After first saying it would be “inappropriate to comment” on Pixar options, CFO Tom Staggs said “We aren’t aware of any basis under which stock options issued by Pixar would have an impact on our financials.”

On Tuesday it was revealed that a number of Pixar execs, including John Lasseter, received suspiciously timed options when the company was still independent and that they could face scrutiny as part of the options backdating scandal.

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