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Disney sees Q4 profits rise, touts Lucasfilm integration

Bob Iger says acquisition of 'Star Wars' brand will 'further fuel Disney's creative engine'

A week after buying Lucasfilm, the Walt Disney Co. wrapped up a strong fiscal year, with revenue increasing 3% to $42 billion while profits rose 18% to nearly $5.7 billion.

For the Mouse’s fiscal fourth quarter ended Sept. 29, Disney posted strong sales of $10.8 billion, up 3%, while profits rose 14% to $1.2 billion.

With “Star Wars” now joining a pantheon that includes Marvel’s superhero pics and Pixar’s toons, and Disney expanding its theme parks and resorts biz, “We’re entering a phaseout of investment mode and transitioning into more compelling growth mode,” Disney chairman-CEO Robert Iger said of the Mouse House’s plans for 2013 during a conference call with analysts on Thursday. “We’re seeing a ramping down of capital spending.”

“Fiscal 2012 was a great year creatively, financially and strategically, resulting in record revenue, net income and earnings per share,” Iger said. “The addition of Lucasfilm will further fuel Disney’s creative engine across our company to create additional value for our shareholders, and we’re confident the company is well positioned to continue our strong performance and growth.”

During the quarter, Disney’s parks and resorts group saw the largest sales gains, up 9% to $3.4 billion, while profits were up another 18% to $497 million. An increase in theme-park attendance and the doubling of Disney’s cruise line fleet also helped the division during the full year, with sales up 10% to $12.9 billion, helping raise profits by 22% to $1.9 billion.

Company saw attendance and sales increases at its domestic parks and resorts, Tokyo Disney Resort, Disney Cruise Line and Hong Kong Disneyland Resort. The opening of Cars Land at Disneyland Resort’s California Adventure boosted attendance levels by 3% during the fourth quarter.

The theme park biz is often used as a barometer for how consumers view the economy, and analysts have been closely watching that area of Disney’s business for signs of growth.

Walt Disney World will launch a tech-based enhanced guest experiences project next year to let visitors plan itineraries ahead of time and enable the park to better manage lines.

Disney’s biggest moneymaker, the media networks division comprised of broadcaster ABC and cablers ESPN and Disney Channels, saw fourth-quarter sales increase 2% to nearly $4.9 billion, while profits rose 7% to nearly $1.6 billion. Revenue was up 4% for the year to $19.4 billion, and profits climbed 8% at $6.6 billion.

Growth at ESPN and Disney Channel helped Disney’s cable networks post a 6% bump in revenue of $13.6 billion for the year, while profits came in 9% higher to $5.7 billion. Quarterly results were also up 2% to $3.5 billion while profits came in 9% higher at nearly $1.3 billion.

Profits for Disney’s broadcast arm were mostly flat for the year at $915 million, attributed to lower advertising revenue and losses at Hulu. For the fourth quarter, operating income at broadcasting decreased $9 million to $192 million, driven by a decline in ABC ad dollars. Disney did cite growth in ad sales for shows “Castle,” “Wipeout” and “Once Upon a Time” but noted that marketing and programming costs are increasing its losses at Hulu.

Iger, like many network owners, is high on Hulu and other online distribution platforms.

“The opportunity to monetize owned IP is only growing because of new technology,” Iger said during the conference call. “We will see growth in revenue and bottom line. It’s an exciting time for intellectual property owners.”

Iger added that the “lack of new buzzworthy hits” hurt ABC this fall but said “ABC’s schedule is pretty solid,” especially on Sunday, and he said he sees potential for a hit in “Nashville.”

The film division’s homevideo results during the fourth quarter were lifted by “The Avengers,” but “Brave” earned less than last year’s “Cars 2,” while marketing expenses for “Frankenweenie” also were factored in during the period, lowering revenue 4% to $1.4 billion and decreasing profits 32% to $80 million.

Fewer film releases and lower overall homevid sales took a toll on the studio, reducing full-year revenues by 8% to $5.8 billion. But operating income increased 17% to $722 million as “The Avengers” and worldwide sales of Disney TV programs offset higher film writedowns from pricey pics like “John Carter” and Henry Selick’s stop-motion pic “Cinderbiter.” Next year, the studio has “Oz the Great and Powerful,” “Iron Man 3,” “Monsters University” and “The Lone Ranger” as its bigger pic releases for summer.

When asked whether Disney could handle another major brand in its portfolio, Iger wasn’t concerned about fitting Lucasfilm’s assets into the mix.

“Six years after the Pixar acquisition, there’s proof this brand’s been handled effectively,” Iger said. “We’ve demonstrated our ability to be ambidexterous. The ‘Star Wars’ brand doesn’t need much help but benefits greatly from the release of a film. When we take over distribution of their films and are the owner of the brand, we’re more focused on growing the brand than the third-party distributor was.”

While 20th Century Fox still controls distribution rights for the “Star Wars” films that were made and any re-releases in 3D, “We did not factor in any need to acquire rights back from News Corp.,” Iger said. “We may choose to explore that, but all value is going-forward value.”

Toward that end, Iger said, “Lucas product will be co-branded with Disney’s name on it.”

That includes consumer products, where Disney saw Marvel’s characters, including Spider-Man, helping to propel the division, which saw sales increase 7% for the year to $3.3 billion and profits rise 15% to $937 million. For the quarter, revenue was up 8% to $883 million as profits surged 29% to $267 million.

Iger said he sees the Lucasfilm acquisition as a “great opportunity to infuse our stores with ‘Star Wars’ merchandise and grow our online business.”

Disney’s interactive arm continues to narrow its losses and is looking toward profitability next year.

Although sales at the division declined 14% to $845 million during the year, losses narrowed by 30% to $216 million. During the fourth quarter, sales fell 14% to $191 million, and the division reported a loss of $76 million, a 19% improvement over the same frame last year.

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