Article: Disney profit falls 26%
Friday, July 31st, 2009Disney 3Q financial results are in. Profits are down, but the company still made a good deal of money.
From the Orlando Sentinel
Walt Disney World’s attendance could be headed for a drop after months of staying afloat despite the deep global recession.
Executives at the Walt Disney Co., reporting financial results for the company’s fiscal third quarter on Thursday, said fourth-quarter room reservations at their U.S. theme parks are running 7 percent behind last year’s pace during the comparable time period.
“It’s a challenging marketplace,” Disney Co. Chief Executive Officer Bob Iger said during a conference call. “And we do expect that challenge to continue.”
The comments came as Burbank, Calif.-based Disney reported results that showed the recession continuing to exact a toll across the company’s vast media-and-entertainment portfolio.
Profit fell 26 percent during the three months that ended June 27, dropping from nearly $1.3 billion a year ago to $954 million. Revenue sank 7 percent for the quarter to $8.6 billion.
Excluding one-time charges, Disney earned 52 cents a share, narrowly topping Wall Street estimates.
Television advertising, DVD sales and merchandise royalties all suffered. And the theme parks continued to slump.
Operating profit at Walt Disney Parks and Resorts fell 19 percent to $521 million, while total revenue was down 9 percent to $2.8 billion, despite favorable timing of the busy Easter holiday.
Disney blamed the division’s struggles in part on lower guest spending at Disney World, where widespread discounts eroded average hotel rates and average ticket prices. Combined per-capita guest spending at Disney World and Disneyland fell 6 percent during the quarter compared with a year earlier.
But the discounts again helped Disney sustain attendance levels despite the tough economic environment: Combined attendance at the company’s U.S. parks rose 3 percent from a year ago, with Disney World flat and Disneyland up 10 percent.
Sponsorship income also fell at Disney World, though a spokesman attributed the decline to difficult comparisons from a year ago, when the company benefited from fees paid as part of a contract renewal with JP Morgan Chase for Disney-branded Visa credit cards.
Iger said Disney has commissioned research demonstrating the advantages of using promotions to stimulate park attendance. Among them: A “spike” in consumer’s price-to-value perception of Disney that could encourage return visits.
Further, Iger said, the research showed that discounts have lured travelers who were not otherwise planning Disney vacations. Some stock analysts had expressed concern that the promotions were simply cannibalizing future theme-park business by persuading travelers who were planning to take trips later this year or in 2010 to travel immediately instead.
“We’re attracting people today that would never have come before,” Iger said.
Still, maintaining attendance levels in the months ahead will likely be challenging.
Although company executives said fourth-quarter room reservations are “slightly ahead” of last year’s pace, that is because this year’s fourth quarter includes an extra week, thanks to a quirk in Disney’s fiscal-year calendar. Without that extra week included, combined reservations at Disney World and Disneyland are lagging last year’s pace by 7 percent.
The company did not rule out extending its current discounts or introducing new offers. Consumers, Iger said, are “still out there looking for value. And that’s a fact that we obviously can’t ignore.”
Michael Corty, an analyst who follows Disney for the stock-research firm Morningstar Inc., said the comments indicate that Disney management does not see an imminent recovery for its theme parks.
“I think they’re really being cognizant of the fact that the economy is still soft, and I think they’re staying flexible,” Corty said. “I would assume they’re taking things week-to-week at this point.”
Beyond parks and resorts, Disney also reported continuing struggles for its movie studio, which swung to a $12 million second-quarter loss from a $97 million operating profit a year ago. Although the Pixar film Up was a hit during the quarter, DVD sales fell as titles such as Bedtime Stories and Confession of a Shopaholic fell far short of last year’s National Treasure 2: Book of Secrets and Enchanted.
Operating profit at Disney’s media networks, which include ABC television and ESPN cable, fell 13 percent because of lower advertising sales and a shift in the timing of revenue recognition from sports programming. Operating profit fell 37 percent in Disney’s consumer-products division, though its new interactive-media unit reported a narrower loss compared with a year ago.
