Disney Profits Dip 27%
Record year ends with down quarter
Jerry W. Jackson
Orlando Sentinel
November 18, 2005
In the final earnings report reflecting Michael Eisner's long reign as chief executive at the Walt Disney Co., the entertainment giant Thursday reported higher revenue and profit but a weak ending to the record fiscal year.
Despite a strong performance at Walt Disney World and from ABC and ESPN, fourth-quarter profit slipped 27 percent as a result of charges, including the expensing of stock options, and soft box-office results.
Poor showings by films such as Dark Water and The Brothers Grimm drove the film unit to its biggest loss in at least six years.
"Competition for the consumer remains fierce," Chief Executive Officer Bob Iger said during a conference call with Wall Street analysts.
But Iger vowed that "nothing is more important to us than creativity," and he pledged to be cautious in growing Disney with quality rather than through acquisitions. Eisner, whose 21-year term at Disney ended in September, was rapped by some critics for taking on huge debt to expand the company in the 1980s and 1990s.
Overall, fourth-quarter profit for the Burbank, Calif.-based company and Central Florida's largest employer fell to $379 million, or 19 cents a share, from $516 million, or 25 cents, a year earlier.
Revenue rose 2.5 percent to $7.73 billion, missing some analysts' estimates. For the year, revenue rose 4 percent to $31.9 billion and profit rose 8 percent to $2.53 billion, or $1.22 per share.
Studio entertainment took the biggest hit, losing $313 million in the final quarter and dropping 69 percent for the year. Revenue fell 13 percent.
"Movies are having a problem. That's no surprise there," said industry analyst Dennis McAlpine of McAlpine Associates in Scarsdale, N.Y. "The theme parks did reasonably well."
While the company does not break out numbers for each park, Walt Disney World saw attendance increase 10 percent during the fourth quarter ended Oct. 1, Chief Financial Officer Tom Staggs said during the conference call. Hotel occupancy rose to 77 percent.
Earlier in the year, Walt Disney World launched Magical Express, a free shuttle and baggage-claim service for guests staying at Disney resorts. The program is designed to increase occupancy at Disney hotels, keeping visitors on Disney property longer.
At Disneyland in California, the fourth quarter was even better than at the Florida resort. Attendance at the company's oldest park was up 15 percent and hotel occupancy rose to 97 percent. Both parks benefited from the worldwide launch of the 50th-anniversary celebration of Disneyland.
Staggs said the operating profit margin for the U.S. parks rose slightly to 17.3 percent during the year, and he said he expects to get the margin back up to about 20 percent in the next several years, as forecast, through cost controls and revenue growth.
Profit margin, a measure of how much profit is being made on gross revenue, is a key indicator of health and particularly tells how a company is doing controlling costs such as payroll and health benefits.
The Parks and Resorts division revenue for the year rose 16 percent to $9 billion, and operating profit increased to $1.2 billion from $1.1 billion.
The results included half a year of consolidation on the books for Euro Disney and Hong Kong Disneyland, which opened in September to strong guest-satisfaction reviews, Disney executives said. That added $672 million in revenue and a $50 million decrease in operating profit; otherwise, the division would have reported lower revenue but a healthier bottom line.
"Next year, the startup costs for Hong Kong won't be in there," said McAlpine, the Wall Street analyst. "That will help."
The ESPN sports cable channels and the ABC television network, home to Lost and Desperate Housewives, helped with strong showings, as media network profit rose 41 percent for the quarter and 27 percent for the year.
ABC is the only broadcast network to add viewers two years in a row, according to Nielsen Media Research. ABC, tied for first with CBS among younger viewers, has attracted audiences with such shows as Grey's Anatomy, Lost and this year's Geena Davis hit Commander in Chief.
Disney's lower fourth-quarter profit was partly the result of the expensing of stock options. Under tougher new federal accounting standards, large companies are now required to count options as an expense, a rule change that lowers profit in the short term. Options are a form of stock-based compensation that soared in popularity during the dot-com era, but their use has waned more recently.
Disney shares dropped 55 cents to $25.45 in extended trading at 4:30 p.m. after earlier falling 14 cents to $25.99 in New York Stock Exchange composite trading. Shares have fallen 6.5 percent this year compared with an 8.4 percent drop at Time Warner Inc., the biggest media company.
Record year ends with down quarter
Jerry W. Jackson
Orlando Sentinel
November 18, 2005
In the final earnings report reflecting Michael Eisner's long reign as chief executive at the Walt Disney Co., the entertainment giant Thursday reported higher revenue and profit but a weak ending to the record fiscal year.
Despite a strong performance at Walt Disney World and from ABC and ESPN, fourth-quarter profit slipped 27 percent as a result of charges, including the expensing of stock options, and soft box-office results.
Poor showings by films such as Dark Water and The Brothers Grimm drove the film unit to its biggest loss in at least six years.
"Competition for the consumer remains fierce," Chief Executive Officer Bob Iger said during a conference call with Wall Street analysts.
But Iger vowed that "nothing is more important to us than creativity," and he pledged to be cautious in growing Disney with quality rather than through acquisitions. Eisner, whose 21-year term at Disney ended in September, was rapped by some critics for taking on huge debt to expand the company in the 1980s and 1990s.
Overall, fourth-quarter profit for the Burbank, Calif.-based company and Central Florida's largest employer fell to $379 million, or 19 cents a share, from $516 million, or 25 cents, a year earlier.
Revenue rose 2.5 percent to $7.73 billion, missing some analysts' estimates. For the year, revenue rose 4 percent to $31.9 billion and profit rose 8 percent to $2.53 billion, or $1.22 per share.
Studio entertainment took the biggest hit, losing $313 million in the final quarter and dropping 69 percent for the year. Revenue fell 13 percent.
"Movies are having a problem. That's no surprise there," said industry analyst Dennis McAlpine of McAlpine Associates in Scarsdale, N.Y. "The theme parks did reasonably well."
While the company does not break out numbers for each park, Walt Disney World saw attendance increase 10 percent during the fourth quarter ended Oct. 1, Chief Financial Officer Tom Staggs said during the conference call. Hotel occupancy rose to 77 percent.
Earlier in the year, Walt Disney World launched Magical Express, a free shuttle and baggage-claim service for guests staying at Disney resorts. The program is designed to increase occupancy at Disney hotels, keeping visitors on Disney property longer.
At Disneyland in California, the fourth quarter was even better than at the Florida resort. Attendance at the company's oldest park was up 15 percent and hotel occupancy rose to 97 percent. Both parks benefited from the worldwide launch of the 50th-anniversary celebration of Disneyland.
Staggs said the operating profit margin for the U.S. parks rose slightly to 17.3 percent during the year, and he said he expects to get the margin back up to about 20 percent in the next several years, as forecast, through cost controls and revenue growth.
Profit margin, a measure of how much profit is being made on gross revenue, is a key indicator of health and particularly tells how a company is doing controlling costs such as payroll and health benefits.
The Parks and Resorts division revenue for the year rose 16 percent to $9 billion, and operating profit increased to $1.2 billion from $1.1 billion.
The results included half a year of consolidation on the books for Euro Disney and Hong Kong Disneyland, which opened in September to strong guest-satisfaction reviews, Disney executives said. That added $672 million in revenue and a $50 million decrease in operating profit; otherwise, the division would have reported lower revenue but a healthier bottom line.
"Next year, the startup costs for Hong Kong won't be in there," said McAlpine, the Wall Street analyst. "That will help."
The ESPN sports cable channels and the ABC television network, home to Lost and Desperate Housewives, helped with strong showings, as media network profit rose 41 percent for the quarter and 27 percent for the year.
ABC is the only broadcast network to add viewers two years in a row, according to Nielsen Media Research. ABC, tied for first with CBS among younger viewers, has attracted audiences with such shows as Grey's Anatomy, Lost and this year's Geena Davis hit Commander in Chief.
Disney's lower fourth-quarter profit was partly the result of the expensing of stock options. Under tougher new federal accounting standards, large companies are now required to count options as an expense, a rule change that lowers profit in the short term. Options are a form of stock-based compensation that soared in popularity during the dot-com era, but their use has waned more recently.
Disney shares dropped 55 cents to $25.45 in extended trading at 4:30 p.m. after earlier falling 14 cents to $25.99 in New York Stock Exchange composite trading. Shares have fallen 6.5 percent this year compared with an 8.4 percent drop at Time Warner Inc., the biggest media company.