Dim Outlook for Disney

[Sarangel]

From Yahoo's Business section:

Walt Disney learned the hard way that pairing the critically acclaimed Sir Anthony Hopkins with the chronically crude Chris Rock in "Bad Company" was a bad idea. Investors who'd shunned one of the summer's biggest box-office flops punished Disney again on Friday, sending shares of the Dow component down 9% to a seven-year low of $15.31.

For its fiscal third quarter ended June 30, Disney posted net income of $364 million, or 18 cents a share, compared with $392 million, or 19 cents, in the year-ago quarter. Pro-forma earnings, which exclude one-time items, came to 17 cents a share compared with 29 cents last year, matching the Thomson Financial/First Call consensus estimate. Revenue dipped 3%, to $5.80 billion.

In addition to the "Bad Company" blunder, as well as other bombs in its movie business, the Burbank, Calif.-based media giant blamed its subpar performance on a drop-off in attendance at its typically reliable theme parks and falling ad revenues and ratings at its struggling ABC television network. Three out of the company's four operating units posted revenue declines, with the movie studio being the sole exception. But while studio revenue grew 3% to $1.4 billion as television-distribution sales offset lower ticket prices and international video revenue, Disney's inability to recoup the marketing and production costs for its summer stinkers sent studio operating income plunging 66% to $22 million.

Most dramatic was the 17% dive in the theme parks' operating income, to $467 million. The unit is customarily one of the company's most consistent sources of profit. Disney said fears of terrorism coupled with economic uncertainty curtailed international attendance at U.S. parks by 30% in the quarter, and would likely do so in the fiscal fourth quarter as well.

In one positive note for investors, Disney followed the lead of other major companies by saying it's in favor of expensing stock options. But until the accounting industry provides clear guidelines, Disney plans to include the effects of this shift in supplementary financial tables in its earnings statements.

Quote:
"At the moment, we view the shares as having fully discounted the rather bleak outlook," wrote Merrill Lynch analyst Jessica Reif Cohen in a research report on Friday. "In our opinion, the key swing factor for Disney's earnings and share price will be the trends within the theme-park segment. In our opinion, the risk-reward profile remains attractive and we would not encourage investors to sell shares based on this news." At press time, it couldn't be determined if Cohen owns shares of Disney; Merrill has an investment-banking relationship with the company.

It's interesting that the theme parks (despite the oft discussed cutbacks) lost so much relative to their position last year. Could it be that the loss of revenue is *due* to all the cutbacks?

Sarangel

 

[raidermatt]

Could it be that the loss of revenue is *due* to all the cutbacks?

In order to try to answer, we need some kind of comparitive data.

Clearly, both the economic factors and cutbacks both have some effect. If somebody gets laid off, they probably aren't coming...

And if only one person spent less $$$ on Disney because of the cutbacks, then they had an impact.

The question is, HOW MUCH is each responsible? (There could be other factors, but no need to make this any more complicated...)

In order to try to answer, we need some kind of comparitive data. Otherwise its just opinions and anecdotal comments.

The only thing I've seen or heard is the Orange County (CA) report mentioned by one of the analysts on the earnings call, which claimed that tourism was up in Orange County by 4% "for the year". But the analyst didn't mention the timeframe, and neither did Disney in its response. They dismissed it as a trailing statistice, which is in synch with their increase in attendance at DLR in the 2ndQ, which they attributed to an earlier Spring Break this year. That makes some sense, but only if the Orange County report only went through March.

But how are other parks doing? Since international travel is down, it makes sense that WDW and to a lessor extent DLR would be hit a little harder than other parks, but it shouldn't be too big of a difference. What about other resort destinations?

I know, no answers, just questions...