Hit movies and solid homevid buffered Disney a bit in the latest quarter from a battering delivered to ABC and theme parks by the war in Iraq.
The Mouse House on Thursday posted a 12% slide in net income in its fiscal second quarter to $229 million. War-related news costs and ad losses drained $32 million from the quarterly bottom line, and another $15 million-$20 million in profit shelling is expected in the current quarter.
“The military conflict in Iraq and fear of terrorism have clearly had a near-term impact on a number of our businesses,” head Mouseketeer Michael Eisner said. “While many of the factors affecting the company are not within our control, we feel confident that the plans and strategies that we have in place will put the company in a solid position when economic conditions improve.”
ABC, ESPN and other broadcast and cable networks posted a collective 25% drop in operating income to $232 million through March 31. But it was conglom’s Alphabet broadcast web catching most of the war flak, with ESPN actually marking quarterly gains.
Disney prexy Robert Iger said ABC has made primetime ratings progress on Tuesday and Wednesday nights this year and hopes to embroider on that success with various new laffers planned for the fall.
“We’re optimistic ABC will be better positioned in the upfront advertising markets relative to previous years,” Iger said.
The Mouse prexy acknowledged some negative reaction to a recent ad-rate increase at ESPN but said the boost is well justified. “(ESPN) is one of the strongest brands in all of television,” he said. “No other cable service provides the same kind of opportunity to the cable operator to generate local advertising revenue.”
ABC also was able to increase some of its ad rates in the quarter thanks to its Super Bowl broadcast. But war programming preemptions ravaged web’s income.
Theme parks hit hard
The war damage was even uglier at theme parks and resorts, where operating income tumbled 45% to $155 million. Execs, who reined in earnings guidance for the year in March, declined in a conference call to say whether any near-term operating conditions might further impact expectations for the fiscal second half.
“I think there’s still a decent amount of variability in the foreseeable future,” chief financial officer Tom Staggs said. “But we remain unbelievably optimistic in the long term, and that’s what we prefer to focus on for the time being.”
Asked if the war’s end had triggered a resumption of travel to U.S. resorts by international patrons, Iger said, “We haven’t seen a dramatic increase yet.”
A bit surprisingly, no one participating in the earnings conference call mentioned the potential for even lower international tourism due to the spreading SARS health crisis. Press also participated in the call but only analysts were allowed to ask questions.
“Nobody really knows what the effect might be,” Sanders Morris Harris analyst David Miller said.
Disney filed a statement with the Securities and Exchange Commission a few weeks ago warning that the SARS epidemic could adversely affect operations. But Disney spokesman John Spelich described the filing as a mere legal caution.
“There’s been no discernible effect on operations (from SARS) so far,” Spelich said.
Meanwhile, operating income from studio entertainment was up almost eightfold in the quarter — to $206 million from a year-earlier $27 million.
Most of the gain traces to hot home- vid titles such as “Sweet Home Alabama,” “Signs” and “Spy Kids 2: The Island of Lost Dreams.” Disney and Miramax movie releases — including “Bringing Down the House,” “Chicago” and “Shanghai Knights” — roughly matched conglom’s theatrical perf in the year-earlier quarter.
“We are extremely pleased with the continued success at the studio,” Staggs said.
Eisner again said he was “moderately optimistic” a new deal can be struck with feature-tooner partner Pixar. “We have a mutual interest in coming together,” the topper said. “I think in the next six months we’ll know more.”
Consumer products dip
The consumer products unit was another back-slider, absorbing a 38% drop in operating income to $53 million. Burbank-based conglom blamed a soft retail market for decreased sales at Disney Stores, though merchandise licensing ops marked royalty gains.
Companywide, revenue rose 7% to $6.33 billion in the quarter.
The results, announced after the close of market trade, were roughly in line with Wall Street expectations. Earnings were on par with average projections and revenue was a bit higher than anticipated by analysts.
“That was all because of the studio unit,” Sanders Morris’ Miller said. “There’s no doubt studio entertainment had a good quarter.”
Notably, home entertainment pumped out 11 DVD and VHS titles in the quarter, compared with five in the year-earlier period.
Disney shares, which outperformed rival media stocks AOL Time Warner and Viacom in the March quarter, closed up 6¢ at $18.72 on Thursday.