Disney Reports Flat Earnings But Sees Conditions Improving

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Walt Disney Co.'s (DIS) fiscal first-quarter net income showed a net profit of $844 million, or 44 cents per share, down slightly from $845 million, or 45 cents are share, a year earlier. Revenues were up 1% to $9.7 billion for the quarter ending January 2, up from $9.6 billion in the quarter ending Dec. 27, 2008.One key factor for the first quarter this year: The parks' New Year's Week revenue was added to Q1, while that week fell in Q2 revenue in 2009. Jay Rasulo, senior VP and CFO, explained that swing into Q1 improved operating income by about $60 million during the earnings call.

President and chief Executive Bob Iger said he was "pleased with the results" and was seeing improvement in advertising and park attendance. He's "excited about our creative pipeline," including upcoming movies Alice in Wonderland and Toy Story 3. New attractions are planned for Hong Kong Disneyland and Walt Disney World in Orlando, Florida. Pirates 4, slated for release in March 2011, is starting production, and Cars 2 will also be released next year.

Media Networks, Disney's largest segment, which includes its TV operations, experienced 7% revenue growth and an 11% profit increase, thanks to improving advertising at ESPN, but programming and production costs also increased. Monday Night Football and college football helped ad revenue as well. At the broadcast operations, ad revenue was lower than last year, when political ads helped feed Disney's coffers.

"Advertisers and customers are making their buying decisions at the last minute," Rasulo said, which makes this a "challenging business environment" for long-term planning. He also indicated that Disney may slowly cut back on discounting but won't make rapid changes. As it makes changes, it will look at consumer response. Rasulo said not to expect major shifts in current discount policies.

Attendance was up 15% at Disneyland in Anaheim, California, but down 1% at Walt Disney World and down an undisclosed percentage at Disneyland Paris. The operating loss for Parks and Resorts was 2%, from $382 million in Q1 2009 to $375 million in Q1 2010. That loss would have been greater if New Year's week had fallen in Q2 2010, as it had in 2009. Along with lower attendance, discounting played a factor in the losses, as well as reduced outlays on food and beverages.

The studio-entertainment segment reported a 30% jump in operating profit, thanks to its U.S. DVD sales and sales of Up and The Proposal. Revenue edged down 1% because sales were down at the U.S. box office and music sales weakened. Both Iger and Rasulo were upbeat about the company's improving trends, but also were cautious about making long-term projections, acknowledging that it's still a tough market. But Iger said Disney was in a "competitive position to deliver long-term growth."
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