Disney sinks as sales miss estimates on ABC ad drop

November 9, 2012 04:23 AM

Walt Disney Co. dropped the most in 15 months after reporting fiscal fourth-quarter sales that missed analysts’ estimates amid declines in film revenue and ABC network advertising.

The shares slumped 6.3 percent to $46.90 at 9:41 a.m. New York time following the results yesterday after the markets closed. Sales at the world’s largest entertainment company rose 3.4 percent to $10.8 billion, trailing the average projection of $10.9 billion, based on estimates compiled by Bloomberg.

The film unit saw declines in revenue and operating income, driven by lower worldwide theatrical results and higher writedowns, while ABC’s ad sales dropped because of decreasing ratings. Disney joins companies including Time Warner Inc. in reporting disappointing advertising for last quarter, said Paul Sweeney, an analyst with Bloomberg Industries.

“Revenue came in light due to weaker-than-expected third- quarter advertising revenue on both broadcast and cable-TV networks,” Sweeney said.

Shares of Burbank, California-based Disney, also owner of the ESPN cable-TV network, declined as much as 7 percent today, the biggest intraday drop since August 2011. They had jumped 33 percent this year through yesterday.

Limited Growth

The advertising slowdown and Disney’s investments in parks will limit profit growth in the near term, Tony Wible, an analyst with Janney Montgomery Scott in Philadelphia, said in a research note today. He lowered his rating on Disney to neutral from buy.

Net income increased 14 percent to $1.24 billion, or 68 cents a share, in the quarter that ended Sept. 29, Disney said yesterday in a statement. That matched predictions.

Ad sales at ABC fell because of lower summer ratings and the Olympics, while advertising on Disney’s cable channels was “relatively OK,” Chief Executive Officer Robert Iger said.

“The trends we are seeing going forward are good,” Iger said in an interview on Bloomberg Television. “We’re ultimately going to deliver a solid year.”

Disney agreed to buy “Star Wars” owner Lucasfilm Ltd. for $4.05 billion on Oct. 30, a deal that furthers Iger’s pursuit of marquee content in an era marked by technology changes.

Services such as $8-a-month video streaming and free game downloads have disrupted Hollywood’s traditional revenue sources. Iger, who paid a combined $11.2 billion for Pixar and Marvel, has said memorable characters will be valuable no matter what medium they appear in.

Sports Rights

Disney paid $7 billion for animation studio Pixar in 2006 and bought Marvel Entertainment in 2009 for $4.2 billion, adding the creators of “Toy Story” and “The Avengers” to the company’s ranks.

Net income in the year-earlier quarter was $1.09 billion, or 58 cents a share. Disney’s net profit for the full fiscal year increased 18 percent to $5.68 billion, while sales climbed 3.4 percent to $42.3 billion.

Sports rights costs for cable TV will be $170 million higher in the current first quarter of fiscal 2013, the company’s Chief Financial Officer Jay Rasulo said in a conference call yesterday. Operating income at the film studio will decline by more than $150 million in the quarter, he also said, due to the strong performance of “Cars 2” and “The Lion King” in 3-D in the same period last year.

Revenue of $500 million will be generated by a new cruise ship, attractions at the company’s California Adventure resort in Anaheim and other park enhancements. These will be offset by investments in theme parks in Orlando, Florida, and Shanghai this fiscal year, Rasulo said.

Bloomberg News

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