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Disney posts 7% profit drop

A $60-million write-off for its cable networks and an ESPN accounting issue pull down earnings in the entertainment conglomerate's fourth quarter.

November 12, 2010|By Dawn C. Chmielewski, Los Angeles Times

Walt Disney Co., burdened by a $60-million write-off for its cable networks and an accounting wrinkle involving ESPN, reported a 7% drop in earnings for its fiscal fourth quarter, driving its stock down after the news leaked out half an hour before the close of trading.

The media and entertainment conglomerate posted a profit of $835 million, or 43 cents a share, for the three months ended Oct. 2. For last year's fourth quarter, Disney earned $895 million, or 47 cents. Revenue fell slightly to about $9.7 billion from nearly $9.9 billion.

Wall Street initially reacted to the leaked news by driving Disney shares down. The stock lost $1.06, or 2.9%, to $35.93.

Despite the charges and write-offs, Disney reported advertising gains for its cable and broadcast TV networks and improving trends at its theme parks and the film studio.

Disney Chief Executive Robert A. Iger told analysts in a conference call that the company took several steps to "position Disney for strong growth." The company, for instance, replaced senior executives at its movie studio and TV and Internet groups. And it invested in new attractions at its theme parks.

Nonetheless, the cable networks group recorded nearly $60 million in programming write-offs at A&E/Lifetime. Disney declined to identify the reason, but people with knowledge of the matter but not authorized to speak about it said the write-offs were related to the cost of reruns of the CBS crime drama "Medium" on Lifetime.

Disney's ESPN sports network hit performance benchmarks earlier this year. It recorded about $354 million in revenue in the third quarter, reducing revenue that normally would have been booked in the fourth quarter. That cost the company about 9 cents a share, executives said.

The A&E and ESPN problems sent operating income down 18% to $1.2 billion at the company's media networks group. Revenue for the group dropped 7% from a year earlier to $4.4 billion.

Operating income at Disney's parks and resorts group fell 8% to $316 million, compared with $344 million a year earlier. Attendance at domestic parks was off 6%, but the public spent more on tickets and food.

The new "World of Color" nighttime water attraction at Disney's California Adventure in Anaheim, one of several improvements there, helped boost the struggling park's attendance by 20%.

The film studio reported a strong fourth quarter, buoyed by Pixar Animation's "Toy Story 3," the highest-grossing animated film of all time.

The studio reported operating income of $104 million, compared with a loss of $13 million a year earlier. It posted gains, despite incurring a $100-million write-down in closing director Robert Zemeckis' motion-capture facility in Northern California and absorbing charges associated with layoffs at the studio.

"On top of the billion dollars in global box office it generated, 'Toy Story 3' drove significant business for our consumer products, interactive media and parks segments," Iger said.

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