By David B. Wilkerson
Walt Disney Co. (DIS) shares declined Friday after the media and
entertainment giant's quarterly financial update raised concerns
about the company's cable networks and parks.
Disney shares, which were up nearly 16% in 2009, fell 3% to
$25.42 in early trading Friday.
The Burbank, Calif., company said Thursday that profit declined
26% for the three months ended June 27, on a decrease in
advertising sales at Disney's television networks and stations, and
on lower DVD sales.
Imran Khan of J.P. Morgan downgraded Disney to underweight from
neutral earlier Friday, citing concerns about weaker advertising
sales trends at cable sports network ESPN and the sluggish pace of
bookings at the company's theme parks and resorts in the current
quarter.
"Despite signs of stabilization in auto sales, we are concerned
that ad weakness at ESPN could persist past [fiscal year] 2009,"
Khan said in a research note.
At ESPN, a drop in ad sales, higher programming costs and the
absence of money that was deferred into last year's third quarter
combined to diminish revenue in the latest quarter. Currently, ad
sales are about 10% lower than they were at the same time in 2008,
Disney said.
However, Oppenheimer & Co.'s Jason Helfstein took a more
sanguine view, raising his 12-month price target to $29 from $26.
He said Disney management's indication that it expects to resume
share buybacks should help the stock.
For the quarter ended June 27, Disney earned $954 million, or 51
cents a share, down from $1.29 billion, or 66 cents a share, a year
ago. Excluding items, the company said it would have earned 52
cents a share, a penny above expectations.
Revenue fell 7% to $8.6 billion, below the average analyst
estimate of $8.83 billion.
Revenue at the company's studio entertainment division fell 12%
to $1.26 billion as home-entertainment sales dropped from a year
ago. The studio unit was also hurt by decreased worldwide
television distribution revenue.
Chief Executive Bob Iger said Thursday that one way to combat
decreasing DVD sales and the rising popularity of rentals is to
concentrate on making movies that are more convenient to own than
to rent, such as child-friendly films.
Revenue at the company's media networks division, which includes
ABC, ESPN and Disney Channel, among other outlets, declined 2% to
$3.96 billion. Most of the decline was seen at the ABC network and
its affiliated TV stations, reflecting an industry-wide downturn as
auto dealers and other traditionally heavy buyers of local TV ads
have been devastated by the recession.
At ABC, higher programming costs and lower prime-time ratings
hampered results.
Chief Financial Officer Tom Staggs said ad buyers are continuing
to buy commercial time closer to a program's airdate, and ABC is
"comfortable" with the prices it has been able to charge for those
ads. However, Staggs said, the network anticipates that it will
sell fewer ads in advance of the autumn TV season than it has in
recent years.
During a conference call, Iger reiterated his skepticism of Time
Warner Inc.'s (TWX) "TV Everywhere" initiative on Thursday,
suggesting that the plan to tie online viewing of TV shows to a
video subscription may not offer programmers enough
compensation.
"TV Everywhere" is a reaction to concerns that the wide
availability of free, ad-supported television shows online...may
one day lead many consumers to stop paying for video subscriptions
- whether from cable, telephone or satellite providers.
Revenue at theme parks and resorts fell 9% to $2.75 billion. The
unit was affected by decreased guest spending at Walt Disney World,
greater costs at Disney Vacation Club and a decline in revenue at
Disneyland Paris.
Reservations at the company's theme parks and resorts are "up
slightly" compared to last year at this time, Staggs said. The
quarter includes an extra week in 2009 on Disney's fiscal calendar.
Excluding that week, bookings are running about 7% lower than the
same period in 2008, he said.
-By David B. Wilkerson; 415-439-6400;
AskNewswires@dowjones.com