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Weak Box Office Drags on Disney Profit

A $313-million loss from Disney's film unit causes fourth-quarter earnings to fall 27%.

November 18, 2005|Kim Christensen | Times Staff Writer

Amid encouraging early returns this month for the animated film "Chicken Little," a flock of box-office turkeys came home to roost Thursday for Walt Disney Co.

A $313-million loss from Disney's film unit caused the Burbank company's fourth-quarter profit to fall 27% to $379 million. Disappointments included "Dark Water" and several poorly performing Miramax films.

Disney executives, who had telegraphed the film-unit loss at a September investment conference, said the studio's performance was offset by strong showings by the ABC and ESPN networks as well as its theme parks. They also predicted success for films including "The Chronicles of Narnia: The Lion, the Witch and the Wardrobe" and next summer's "Cars" with Pixar Animation Studios.

"We recognize there are aspects of the results that are disappointing," Chief Financial Officer Thomas Staggs said after a conference call with analysts. "At the same time, we think we are on the right track with where we are taking the studio and the company as a whole."

The 19-cents-a-share earnings compared to a year-earlier profit of $516 million, or 25 cents a share. Results beat Wall Street's forecast of 18 cents, according to Thomson Financial.

Revenue for the quarter rose 2.5% to $7.7 billion, from $7.5 billion a year earlier.

Chief Executive Robert Iger told analysts the company would continue to deliver "double-digit growth in earnings per share" next year and beyond, driven by Disney's priorities of "creativity and innovation, applying technology and global expansion.

"Great creative content, whether TV series, movies or theme park attraction, is powering us today and will continue to drive us into the future," Iger said.

He said the company would continue to "develop strong content and leverage that content" across new technologies, such as Disney's recent collaboration with Apple Computer Inc. for iPod downloads of some of its most popular shows.

The studio's lackluster performance, which Staggs had described in September as "considerably worse than anticipated," was driven in part by industrywide lethargy at the box office and a cooling of the DVD market.

But most of the blame fell to the anemic performance of the company's movies, including three Miramax films: "The Great Raid," "The Brothers Grimm" and "Underclassman." The three were among a rush of titles the studio had agreed to release by Sept. 30, the date Miramax founders Harvey and Bob Weinstein formally cut their ties to Disney.

Disney's computer-animated feature "Chicken Little," however, raked in more than $80 million at the domestic box office in its first two weeks.

The company's broadcast and cable operations flourished in the fourth quarter, with revenue increasing this year by 12%, to $13.2 billion, and operating income rising from $2.2 billion to $2.7 billion.

Staggs said that "perhaps the most gratifying aspect" was the resurgence of ABC through such hits as "Desperate Housewives," "Lost" and "Grey's Anatomy."

"But the key driver of growth in cable was once again ESPN," he said, noting double-digit increases in revenue and profit for the sports cable channel.

Revenue for Disney parks and resorts increased by 16%, to $9 billion, as operating income rose from $1.1 billion to $1.2 billion. Staggs said the increases were attributable, in part, to Disneyland's 50th-anniversary celebration.

The company's consumer products division saw revenue for the year decline by 15%, to $2.1 billion, primarily because of the sale of the North America Disney Stores in November 2004. Operating income decreased from $534 million to $520 million.

Harold Vogel, an independent media analyst, said the earnings reflected "a fairly sedate quarter" with few surprises.

"I think it fell very well into the middle of the expectations spectrum," he said. "The numbers for ESPN were good. The film business was not good."

A noncash charge stemming from an accounting change reduced Disney's earnings by 2 cents, as did a separate stock option expense.

For the fiscal year, Disney's net income rose 8% to $2.5 billion, with revenue climbing 4%, to $31.9 billion.

Results came after the market closed. Disney stock rose 14 cents to $25.99.

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