LOS ANGELES (Reuters) - The Walt Disney Co.'s stock is oversold and undervalued just as the company is expected to return to strong growth in 2003 with an ABC network recovery and better theme park results, Chief Executive Michael Eisner told shareholders on Tuesday.
Eisner, in his annual letter to shareholders, repeated Disney's (NYSE
IS - news) forecast for 25 percent to 35 percent earnings growth in 2003 and "continued strong growth in 2004" as investments in its theme parks and its ESPN cable franchise pay off and as ratings of its ABC network bounce back from a "lousy" season.
Eisner, who joined Disney as CEO in 1984 and was credited with engineering a turnaround that drove earnings and its share price rapidly higher through the mid-1990s, compared the current, tough market to the time of his arrival.
"I came to the company at a time when the market did not fully appreciate the potential of this company," Eisner said in the letter dated Dec. 16. "I believe that we are once again at a point where there is a disconnect between Disney's underlying strength and potential and the market's perception of its strength and potential."
Disney shares fell 21 percent in 2002, extending a three-year decline and taking the stock to its lowest since 1994, as it was hit by low ratings at ABC, a slump in travel that lowered its theme park traffic and questions about the independence of its board. Its stock ended up 10 cents at $16.85.
In his open letter, which will be published in Disney's annual report, Eisner outlined steps the company has taken in response, including throttling back on new investment and instituting new corporate governance rules.
"Whereas the hallmark of the last five years has been investment, the next five years will be primarily about reaping the fruits of that investment," Eisner said.
Disney on Monday announced plans to trim the size of its board to 13 members and said it would continue governance initiatives begun last year, including a succession plan for Eisner, who ranks as the longest-serving chief executive among those heading companies represented in the Dow Jones industrial average.
Although Eisner faced pressure for change last year from within the board from directors Stanley Gold and Roy Disney and from some institutional investors, he said his interests and those of shareholders were aligned.
"I am pleased to institute these board governance reforms because after all, I am a Disney shareholder too," he said.
In August, Eisner disclosed he bought 725,700 Disney shares at an average price of $13.94 a share, near its eight-year low, taking his stake to near 13.99 million shares.
Eisner, whose shareholder letters are known for a conversational tone, was blunt in sizing up two of the company's problems of the past year: weak ABC ratings in prime-time and "Treasure Planet," an epic cartoon that cost $140 million and flopped at the box office.
"After ... let's be frank, after a lousy 2001-20002 season, the new prime-time season is very encouraging," he said of ABC.
Eisner said "'Treasure Planet' never punched through in the crowded marketplace to get noticed. Either we mis-marketed it, the idea wasn't appealing, or the stars were not aligned. But one thing it did teach us: the entertainment business is fickle. Failure is educational. It keeps one humble."
Back in December, Disney lowered its fiscal 2002 earnings report by $47 million, after taxes, from the failure of "Treasure Planet" at box offices.
Eisner, in his annual letter to shareholders, repeated Disney's (NYSE
IS - news) forecast for 25 percent to 35 percent earnings growth in 2003 and "continued strong growth in 2004" as investments in its theme parks and its ESPN cable franchise pay off and as ratings of its ABC network bounce back from a "lousy" season. Eisner, who joined Disney as CEO in 1984 and was credited with engineering a turnaround that drove earnings and its share price rapidly higher through the mid-1990s, compared the current, tough market to the time of his arrival.
"I came to the company at a time when the market did not fully appreciate the potential of this company," Eisner said in the letter dated Dec. 16. "I believe that we are once again at a point where there is a disconnect between Disney's underlying strength and potential and the market's perception of its strength and potential."
Disney shares fell 21 percent in 2002, extending a three-year decline and taking the stock to its lowest since 1994, as it was hit by low ratings at ABC, a slump in travel that lowered its theme park traffic and questions about the independence of its board. Its stock ended up 10 cents at $16.85.
In his open letter, which will be published in Disney's annual report, Eisner outlined steps the company has taken in response, including throttling back on new investment and instituting new corporate governance rules.
"Whereas the hallmark of the last five years has been investment, the next five years will be primarily about reaping the fruits of that investment," Eisner said.
Disney on Monday announced plans to trim the size of its board to 13 members and said it would continue governance initiatives begun last year, including a succession plan for Eisner, who ranks as the longest-serving chief executive among those heading companies represented in the Dow Jones industrial average.
Although Eisner faced pressure for change last year from within the board from directors Stanley Gold and Roy Disney and from some institutional investors, he said his interests and those of shareholders were aligned.
"I am pleased to institute these board governance reforms because after all, I am a Disney shareholder too," he said.
In August, Eisner disclosed he bought 725,700 Disney shares at an average price of $13.94 a share, near its eight-year low, taking his stake to near 13.99 million shares.
Eisner, whose shareholder letters are known for a conversational tone, was blunt in sizing up two of the company's problems of the past year: weak ABC ratings in prime-time and "Treasure Planet," an epic cartoon that cost $140 million and flopped at the box office.
"After ... let's be frank, after a lousy 2001-20002 season, the new prime-time season is very encouraging," he said of ABC.
Eisner said "'Treasure Planet' never punched through in the crowded marketplace to get noticed. Either we mis-marketed it, the idea wasn't appealing, or the stars were not aligned. But one thing it did teach us: the entertainment business is fickle. Failure is educational. It keeps one humble."
Back in December, Disney lowered its fiscal 2002 earnings report by $47 million, after taxes, from the failure of "Treasure Planet" at box offices.
