Disney Results Disappoint Despite Film Success--3rd Update

By Tess Stynes 

Walt Disney Co.'s earnings rose a weaker-than-expected 1.7% in the latest quarter, helped by the popularity of the films "Star Wars" and "Zootopia" but hurt by lower ad revenue at ESPN and costs related to its soon-to-open park in Shanghai.

The Burbank, Calif., company also said it was exiting its Infinity videogame business, resulting in a $147 million charge in the April 2 quarter.

Disney shares fell 4.6% to $101.73 in recent after-hours trading as its second-quarter per-share earnings, excluding certain one-time items, and revenue missed expectations. Through Tuesday's close, the stock has risen roughly 20% over the past three months.

Investors have remained focused on subscriber trends at the company's ESPN sports network and the effect of "cord-cutting" and "skinny bundles" on Disney's television business.

Disney said Tuesday that while profits rose at ESPN, ad revenue fell because of lower ratings and rates, which the company blamed on fewer college football playoff games in the second quarter this year.

Revenue at the company's media networks' business, revenue edged down 0.3% to $5.79 billion. Revenue in its cable networks unit, which includes ESPN, declined 1.9% to $3.96 billion, while broadcasting revenue rose 3.3% to $1.84 billion.

Earlier Tuesday, ESPN and Verizon Communications Inc. said they settled a yearlong legal dispute over how the sports network is distributed by the phone giant's Fios unit. ESPN has been left out of several channel packages over the years, but in February, Verizon revamped its base packages to include one with sports channels like ESPN and one without.

In contrast to Disney's media networks business, growth at the studio division surged, thanks to the company's recent film releases. In the latest quarter, Disney's studio division reported that revenue rose 22% to $2.06 billion.

Next month, the company's $5.5 billion Shanghai Disney Resort officially opens. Tuesday, Disney said profits at its domestic sites were partly offset by higher pre-opening expenses for Shanghai Disney as well as higher costs at Disneyland Paris and fewer visitors at Hong Kong Disneyland. Revenue in the segment grew 4.5% to $3.93 billion, and profits increased 10% to $624 million.

Consumer products and interactive media revenue declined 1.7% to $1.19 billion. Disney cited lower same-store sales in its retail business and lower results for its Infinity videogame business; however, the company also noted that licensing revenue growth was driven by Star Wars merchandise.

Disney said it would cease publishing "Infinity," which has seen sales decline for more than a year amid stagnant consumer interest and growing competition in the "toys-to-life" category, which combines real-world toys with videogames. Along with the cancellation, Disney is cutting between 250 and 300 jobs, a spokeswoman said, and closing a game-development studio in Utah.

Over all, for the period ended April 2, Disney reported a profit of $2.14 billion, or $1.30 a share, up from $2.11 billion, or $1.23 a share, a year earlier. Excluding a write-down for the videogame business, the company had earnings of $1.36 a share.

Revenue increased 4.1% to $12.97 billion.

Analysts polled by Thomson Reuters expected per-share profit of $1.40 and revenue of $13.19 billion.

A likely topic on the earnings conference call will be Disney's CEO succession plans in the wake of Tom Staggs -- once viewed as the heir apparent to Chief Executive Robert Iger, stepping down from the No. 2 executive post.

--Ben Fritz contributed to this article.

Write to Tess Stynes at [e-mail]

(END) Dow Jones Newswires

May 10, 2016 17:49 ET (21:49 GMT)

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