By Gina Keating and Sue Zeidler
LOS ANGELES (Reuters) - Walt Disney Co reported a sharply lower-than-expected quarterly profit as the global downturn hurt its TV advertising, DVD sales and theme parks, and its shares fell more than 7 percent.
The performance by Disney, the first of the major U.S. media companies to report quarterly results this season, bode ill for Time Warner and News Corp "What it would say is that most entertainment conference calls are going to bring gloomy news of an increasingly challenged advertising environment," Barclays Capital entertainment analyst Anthony DiClemente said. Disney continues to see softness in ad sales at its ABC broadcast network and ESPN cable sports network, though advance bookings at its domestic theme parks are up slightly this quarter, Chief Financial Officer Tom Staggs told analysts. Disney Chief Executive Robert Iger warned, however, that in addition to economic pressures, the company was "experiencing secular changes" in consumer behavior that could have long-term impact on its broadcast television and DVD sales. Iger told analysts that the company was still looking at "very significant" overall cost reductions, including "reducing costs of distribution, production (and) marketing. The company said last month that it was cutting hundreds of jobs at its theme parks, ABC Media Group and ESPN, and consolidating ABC's production and network businesses. "SLIGHTLY ENCOURAGING" Disney's fiscal first-quarter net profit fell 32 percent to $845 million, or 45 cents per share, from $1.25 billion, or 63 cents per share, in last year's first quarter. Excluding gains from the sale of investments in Latin American pay-TV services, earnings fell to 41 cents per share versus a comparable consensus estimate of 50 cents, according to Reuters Estimates. Revenue fell 8 percent to $9.6 billion from $10.45 billion a year earlier, short of a Wall Street forecasts for $10.04 billion, according to Reuters Estimates. "It's a bad miss but the problems that led to this miss are fixable -- the economy... and they have work to do on the cost side of the equation," Caris & Co analyst David Miller said. Operating income at Disney's theme parks fell 24 percent to $382 million in the quarter, buffeted by slowing U.S. consumer spending and a $40 million accounting charge on fuel hedges. Revenue at the parks fell 4 percent to $2.67 billion, despite deep discounts for park stays and tickets instituted last fall. But the discounts, extended on Tuesday through March 29, have boosted domestic room reservations and attendance in the second and third quarters over 2008, Staggs said. Edward Jones consumer analyst Robin Diedrich said the January park trends were "slightly encouraging" and in line with those of other consumer-facing companies. "Slowly, very slowly, things have been... coming off of what appears to be a really low period," Diedrich said. At media networks, operating profit fell 29 percent to $655 million and revenue slid 5 percent to $3.9 billion on weak ad sales at ESPN and lower ratings at ABC, as well as tough comparisons with "High School Musical 2" DVD sales in 2008. The pace of ad sales is down slightly at ABC and ESPN and "significantly" at Disney owned and operated TV stations in the current quarter versus 2008, Staggs said. Spot ad sales at ABC are fetching slightly higher prices than advance sales in the current quarter, but advertisers have been slower to pick up options for time in the third quarter. DVD sales for Disney Studios' "Prince Caspian" were no match for 2008's "Pirates of the Caribbean: At World's End", bringing the unit's operating profit down 64 percent to $187 million, and revenue down 26 percent to $1.95 billion in the quarter. Operating profit at the Consumer Products unit fell 8 percent to $265 million, squeezed by flat royalties and retail store costs. Revenue rose 18 percent to $773 million. Disney shares fell 7.4 percent to $19.09 in after-hours electronic trade from a close of $20.62 on Tuesday on the New York Stock Exchange. (Additional reporting by Sue Zeidler; Editing by Edwin Chan, Leslie Gevirtz and Carol Bishopric)
