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'Monsters' Pushes Up Disney Profit

Movie division helps propel earnings rise of 18%. Income falls at three other divisions.

November 08, 2002|James Bates and Richard Verrier | Times Staff Writers

Walt Disney Co. capped one of its most difficult years ever with an 18% rise in fiscal fourth-quarter results, thanks in part to strong DVD and video sales of "Monsters, Inc."

Chief Executive Michael Eisner predicted even better results down the line. He said profit should grow 20% to 30% in the year ahead, despite continuing problems with the ABC television network and soft theme park results. Some media specialists say that goal may be achievable because current profit levels are so low.

Although fourth-quarter earnings were up overall, operating income at three of Disney's four divisions was down for the period.

In a conference call with Wall Street analysts on Thursday, Eisner described the last year as "difficult on many fronts, but one in which we emerged stronger and in a better position than when we began."

The Burbank entertainment company reported quarterly net income of $222 million, or 11 cents a share, compared with a year-earlier profit of $188 million, or 9 cents, adjusted to reflect revised accounting rules. Without the adjustment, net income a year earlier would have been $53 million, or 3 cents a share.

The latest results, which Disney had telegraphed to investors, were in line with Wall Street's diminished expectations.

Revenue for the three-month period ended Sept. 30 rose 15% to $6.7 billion.

"Recovery still appears to be way off," said Jordan Rohan, an analyst with SoundView Technology Group.

Added John Tinker, managing director of Blaylock & Partners, "The company is still in the 'show me' mode."

Disney's last fiscal year was one of the bleakest the company has endured in a decade, mainly because of the steep falloff in tourism and weak ratings at ABC. The company's stock price has lagged, and its credit rating was downgraded. Eisner has been under pressure from investors and some members of the Disney board to quickly repair the damage.

For fiscal 2002, Disney's net income rose to $1.3 billion, or 63 cents a share, from $891 million, or 42 cents.

Although up 46%, the numbers are skewed because the 2002 figure includes a $216-million pretax gain from the sale of an investment in media chain Knight Ridder, and the 2001 number reflects restructuring charges of $1.5 billion at Disney's ill-fated Internet operation.

Nonetheless, Disney executives told analysts and reporters that they believe the ship is being righted.

Lifting Disney's earnings was the fourth-quarter performance of the studio, which reversed a year-earlier loss of $121 million with operating income of $149 million on a 52% jump in revenue, to $2 billion.

The results underscore how important DVD sales have become to entertainment giants. In addition, Disney benefited from the theatrical release of the hits "Sweet Home Alabama" and "Signs."

It's a different story for Disney's media networks, which include the highly profitable ESPN cable channel and ailing ABC. Income in that unit fell 60% to $147 million on a 6% rise in revenue to $2.4 billion. The division saw a 49% drop in operating income for the year to $990 million.

Disney President Robert Iger said ABC's losses would continue to be substantial this year.

"Obviously, we're crawling back out of a hole that was larger than we ever hoped," Iger said.

But Iger and Eisner touted ABC's success at gaining a foothold in the ratings with such shows as "8 Simple Rules for Dating My Teenage Daughter" and "The Bachelor."

Disney's theme parks continued to reflect the effects of the weak economy and a drop-off in travel after last year's terrorist attacks. Operating income for the division fell 25% in the quarter to $235 million on a 1% dip in revenue to $1.7 billion.

In the fourth quarter, attendance at Walt Disney World was down 11% from the prior year. Attendance at Disneyland was slightly higher than a year ago.

Disney executives said they expected an improvement in the theme park business by next year, but gave mixed signals.

Although international travel has improved, local attendance at Walt Disney World suffered in the fourth quarter, which Disney attributed to steep discounting by rivals such as Universal Studios and SeaWorld in Florida.

Disney's consumer products unit suffered an 8% decline in income to $82 million as revenue dropped 8% to $569 million.

Disney shares fell 60 cents to $18.26 on the New York Stock Exchange. Results were announced after the market closed.

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