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Disney's Stock Plummets 15% on Warning Profit Will Be Flat

Earnings: Firm's forecast for fiscal 1st quarter fuels fears of weaker TV ad revenue, ratings.


Walt Disney Co. shares plunged more than 15% Thursday as the company warned of flat profit for its fiscal first quarter, signaling Wall Street's growing concern about a softening TV advertising market and the slipping ratings for ABC's "Who Wants to Be a Millionaire."

The drop in Disney stock, which fell $5.75 to $31.13 a share on the New York Stock Exchange, came despite the announcement of a stellar turnaround year for the company as a whole. Profit in its fiscal fourth quarter, ended Sept. 30, surged beyond what Wall Street had forecast, thanks mostly to strong results in its television and theme park operations.

Analysts Jessica Reif Cohen of Merrill Lynch, Jill Krutick of Salomon Smith Barney and Christopher Dixon of UBS Warburg on Thursday all downgraded Disney out of concerns about the ad market. Krutick said that, although the advertising market may improve early in 2001, "we think it is more appropriate to take a wait-and-see attitude on [Disney shares]."

Similar concerns over weakening ad demand were behind steep drops in the stocks of other media giants, including Viacom Inc., Time Warner Inc. and News Corp. Viacom's Class A stock dropped $4.19 to close at $53.38 on the NYSE as investors sold shares of the CBS parent. News Corp.'s American depository receipts dropped $5.13 to $38 and Time Warner Inc.'s shares fell $4.36 to $78.84, both on the NYSE.

Overall, Disney's net income was $240 million, or 11 cents a share, for its fiscal fourth quarter on $6 billion in revenue. That included a $177-million loss from its retained interest in the fledging Walt Disney Internet Group. Wall Street had expected around 7 cents a share.

Profit was nearly triple the $85 million earned in the previous year's quarter. Excluding the losses from the Internet group, Disney would have earned $417 million, or 20 cents a share, in the period.

But spoiling the good news was the hazy future of Disney's television operation, which during the last year turned into the Burbank entertainment giant's most profitable unit thanks largely to "Millionaire."

Disney Chief Executive Michael Eisner, clearly frustrated that the company's results are being overshadowed, downplayed concerns about an overall softness in TV advertising in an interview.

"I think it's a premature pointing at a sky that is not falling," Eisner said. He added that Disney expects to see solid growth in advertising after the first of the year, criticizing Wall Street's "herd mentality" that led to the sell-off.

Investors are worried that network advertising is starting to slow from a softer economy, and that networks are being hurt by big drops in ads from the ailing Internet sector.

As for "Millionaire," ratings for the show are off about 30%, and have been especially weaker with younger viewers. That has investors worried, and competitors smelling blood.

This week, News Corp. Chairman Rupert Murdoch, asked during a conference call about "Millionaire," said that, although the game show continued drawing large overall audiences, "we are killing them in the demographics" for younger viewers at his Fox network.

"Clearly, it is becoming an old show," Murdoch said.

Disney executives counter that the show still draws huge ratings, captured three of the top 10 slots last week and has handily beat such highly touted new shows as the CBS comedy "Bette."

"Would I still like it to be the No. 1, 2, 3 and 4 show every week? Of course. Do I like the fact it was No. 1 [in its time slot last night] by double? Yeah," Eisner said.

In an earlier conference call with analysts, Disney President Robert Iger said that a number of special events were planned for "Millionaire" to give the show a boost. Iger said they include having as contestants celebrities, rock stars, newlyweds, students, parents with their children and offering an escalating bonus prize.

Disney's stock began sinking after Chief Financial Officer Thomas Staggs told analysts that first-quarter earnings would match last year's results, rather than exceed them as Wall Street expected.

In an interview, Staggs said concerns about the advertising environment led the company to issue the forecast. He added that the first quarter will be hurt by the company's ailing consumer products unit, which is being revamped to improve the sale of licensed merchandise such as clothing, lunch boxes, backpacks and toys.

Staggs said that even with the revamping, strong growth from that business isn't likely to return until after 2001.

In other results, Disney's studio unit in the quarter reported $87 million in operating income from a loss of $84 million a year earlier, when it had such box-office duds as "The 13th Warrior," "Mumford" and "Mystery Alaska."

Theme parks and resorts saw a 10% rise in operating profit to $362 million; for Disney's media networks operation, which includes ABC and cable channels like ESPN, the increase was 26% to $460 million.

Disney's consumer products business saw a 25% increase in operating income to $100 million from a year earlier, but only because the operation took substantial write-downs a year ago on its troubled operations.


Mouse Trouble

Shares of Walt Disney, which have been ratcheting lower in recent weeks, plunged 15.6% on Thursday on concerns about future ad sales at its ABC-TV unit, where the hit show "Who Wants to Be a Millionaire" is dropping in the ratings.

Monthly closes and latest for Disney shares on the NYSE





Source: Bloomberg News

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