Fitch says Disney unlikely to improve much in 2003
08/28/02 11:01 ET
NEW YORK (Reuters) -- Walt Disney Co. is unlikely to meaningfully improve its operations in 2003 as it struggles to reverse sagging theme park attendance and TV ratings, Fitch Ratings said on Wednesday.
The credit rating agency on Monday cut Disney's senior unsecured debt rating one notch to "BBB-plus," its third lowest investment grade, with a negative outlook. The downgrade affected about $14 billion of debt. Fitch became the first leading U.S. rating agency to downgrade the Burbank, California company to the "triple-B" category, a low investment grade.
Fitch said Disney's ability to improve earnings remains largely dependent on its boosting profits at its resorts and the box office, reinvigorating its ABC television network, and benefiting from a pickup in the U.S. economy.
"These factors make it difficult to expect a substantial improvement in business in 2003," said Fitch analyst Albert Turner in a conference call.
Disney this month said fiscal third quarter net profit fell by nearly one-third from a year ago to $364 million, or 18 cents per share, on revenue of $5.8 billion. It warned that fourth-quarter profit may drop because of falling tourism.
The company said on Monday that the Fitch downgrade resulted from "short-term business conditions," and that it was confident in its balance sheet's health.
Moody's Investors Service and Standard & Poor's Ratings Services have threatened to cut their respective "A3" and "A-minus" senior debt ratings for Disney, the equivalent of one notch above Fitch's current rating.
Disney shares traded Wednesday morning on the New York Stock Exchange at $15.57, down 43 cents, or 2.7 percent. They closed one year ago at $25.76.
WEAKNESS IN MANY AREAS, LIQUIDITY ADEQUATE
Higher prime-time TV program costs, the unlikelihood of a sustainable attendance rebound at such resorts as Disneyland and Walt Disney World, and declines in Disney's live-action and animated movie businesses will weigh on results, Fitch said.
"The competition in the animated market, which a year ago was believed to have been thinning out, has been reinvigorated," said Turner. "This is a special issue for Disney because animated film is a core franchise ... and has traditionally provided flow-through" to other businesses.
Fitch said it had expected Disney would sell assets and cut debt after its purchase last year of the Fox Family Channel for $5.2 billion, including $2.4 billion of assumed debt.
Turner said that while Disney has sold about $800 million of assets, it will likely maintain a 3.5-to-1 fiscal 2002 debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio and "operate at this level for a sustained period of time." He said fiscal 2002 EBITDA will likely come in "several hundred million dollars" below the $4.1 billion that Fitch had expected.
Still, Turner said "the company has adequate liquidity to meet all of its anticipated needs." Disney had $15.3 billion of debt at the end of its third quarter, and its commercial paper balance has since fallen from $1.6 billion, he said
08/28/02 11:01 ET
NEW YORK (Reuters) -- Walt Disney Co. is unlikely to meaningfully improve its operations in 2003 as it struggles to reverse sagging theme park attendance and TV ratings, Fitch Ratings said on Wednesday.
The credit rating agency on Monday cut Disney's senior unsecured debt rating one notch to "BBB-plus," its third lowest investment grade, with a negative outlook. The downgrade affected about $14 billion of debt. Fitch became the first leading U.S. rating agency to downgrade the Burbank, California company to the "triple-B" category, a low investment grade.
Fitch said Disney's ability to improve earnings remains largely dependent on its boosting profits at its resorts and the box office, reinvigorating its ABC television network, and benefiting from a pickup in the U.S. economy.
"These factors make it difficult to expect a substantial improvement in business in 2003," said Fitch analyst Albert Turner in a conference call.
Disney this month said fiscal third quarter net profit fell by nearly one-third from a year ago to $364 million, or 18 cents per share, on revenue of $5.8 billion. It warned that fourth-quarter profit may drop because of falling tourism.
The company said on Monday that the Fitch downgrade resulted from "short-term business conditions," and that it was confident in its balance sheet's health.
Moody's Investors Service and Standard & Poor's Ratings Services have threatened to cut their respective "A3" and "A-minus" senior debt ratings for Disney, the equivalent of one notch above Fitch's current rating.
Disney shares traded Wednesday morning on the New York Stock Exchange at $15.57, down 43 cents, or 2.7 percent. They closed one year ago at $25.76.
WEAKNESS IN MANY AREAS, LIQUIDITY ADEQUATE
Higher prime-time TV program costs, the unlikelihood of a sustainable attendance rebound at such resorts as Disneyland and Walt Disney World, and declines in Disney's live-action and animated movie businesses will weigh on results, Fitch said.
"The competition in the animated market, which a year ago was believed to have been thinning out, has been reinvigorated," said Turner. "This is a special issue for Disney because animated film is a core franchise ... and has traditionally provided flow-through" to other businesses.
Fitch said it had expected Disney would sell assets and cut debt after its purchase last year of the Fox Family Channel for $5.2 billion, including $2.4 billion of assumed debt.
Turner said that while Disney has sold about $800 million of assets, it will likely maintain a 3.5-to-1 fiscal 2002 debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio and "operate at this level for a sustained period of time." He said fiscal 2002 EBITDA will likely come in "several hundred million dollars" below the $4.1 billion that Fitch had expected.
Still, Turner said "the company has adequate liquidity to meet all of its anticipated needs." Disney had $15.3 billion of debt at the end of its third quarter, and its commercial paper balance has since fallen from $1.6 billion, he said