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Despite Criticism, Disney Reports Strong Earnings

February 2004

Despite Criticism, Disney Reports Strong Earnings
 

By Alex Pham, Times Staff Writer
February 12, 2004

Hours after receiving a $51-billion buyout offer from Comcast Corp., Walt Disney Co. reported strong fiscal first-quarter earnings that executives said disproved criticism that the storied company is mismanaged.

The results, released six hours ahead of schedule, took on added importance as Disney Chairman Michael Eisner struggles to maintain control of the company amid calls for his resignation from former board members.

Disney's financials for the quarter ended Dec. 31 gave Eisner fresh ammunition against his critics, who include Roy E. Disney, nephew of the company's founder. Citing a 19% jump in revenue and higher profit, Eisner told analysts and investors gathered in Orlando, Fla., for a company conference that Disney's financial performance was "strong evidence that we are on the right course."

Eisner also reiterated a positive outlook for the rest of the year and beyond.

"Clearly, these great results increase our confidence that we will deliver earnings growth from our continuing operations of more than 30% in 2004," Eisner said. "We are targeting double-digit compound growth in our earnings through at least 2007."

Driven by brisk sales of "Finding Nemo" and "Pirates of the Caribbean" DVDs, higher advertising revenue on the company's cable and network channels and a rebound in attendance at its Disneyland and Walt Disney World theme parks, revenue last quarter was $8.5 billion, up from $7.2 billion a year earlier.

Net income was $688 million, or 33 cents a share, up from $36 million, or 2 cents, a year earlier. Wall Street analysts had expected Disney to earn about 23 cents a share in the recent quarter.

The year-earlier earnings were brought down by two factors: a $114-million write-down in the value of an aircraft leasing deal with United Airlines and a change in accounting that pulled net income down by an additional $71 million.

The latest quarter's results were driven primarily by Disney's film studios, which include Walt Disney Studios and Miramax Films, with sales up 57% to $3 billion and operating income more than tripling to $458 million, thanks to sales of 140 million DVDs and videotapes.

Disney's television business, which includes the ABC network and ESPN cable channel, saw sales grow 6% to $3.1 billion.

Disney said its television results were aided by lower costs to broadcast National Football League games on ESPN and ABC. It also reported higher advertising revenue from the "upfront market," when networks sell the bulk of their commercial time for the season.

Theme park revenue grew 5% to $1.6 billion. Sales from Disney merchandise and licensing were up 7% to $840 million.

The company said theme park attendance so far this year is about 10% ahead of last year.

Analysts were mostly pleased with the quarter's results, but some wondered how sustainable Disney's long-term growth prospects were, particularly with its lucrative collaboration with Pixar Animation Studios scheduled to end in 2006.

"Long term, Disney's a great brand and a great franchise, but it's not clear where it is going in the long run that's different from where it is now," said Ken Marlin, managing partner at Marlin & Associates, a New York-based investment banking firm specializing in media firms.


Times staff writer Richard Verrier contributed to this report.

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