Disney results are no Magic Kingdom

Fiscal-second-quarter profit beats estimates, but shares drop as results in its theme-park and broadcasting operatings miss estimates.

By Charley Blaine May 11, 2010 6:24PM

Disney Mickey Mouse © Bobby Yip / ReutersWhen investors are in a gnarly mood, it may be too much to ask that they'll embrace a decent earnings report. That may be why Walt Disney (DIS) shares dropped late today after beating Street estimates for the company's fiscal second quarter.


Disney earned $953 million, or 48 cents a share,  in the quarter, up 55% from a year ago. Revenue of $8.58 billion was up 6.1% from a year.

The earnings beat the consensus estimate of 45 cents a share. Revenue was $190 million better than expected.


Yet, Disney shares were down 3.5% to $35.51 after hours. They had risen 1.3% to $35.76 in regular trading and were the best performer among the 30 stocks in the Dow Jones Industrial Average ($INDU). Here's why the shares were lower:


The Street wanted bigger earnings, and there were several areas of Disney business that suggested the recession is still affecting its operations.


The big news from the Mouse House was that its movie business had a terrific quarter thanks to a strong performance from the Tim Burton film "Alice in Wonderland." The film has already grossed some $960 million. Walt Disney Co.


The movie business, which had been plagued by some losers in the last year, was "the real surprise" in the report, RBC Capital analyst David Bank told Reuters.  


Disney expects big results from "Iron Man 2," which has grossed more than $340 million after less than a week in release. That should boost results in the fiscal third quarter.


But its parks and resorts business saw only a 2% gain in revenue to $2.45 billion and a 12% decline in profit to $150 million. Hotel reservations for the fiscal third quarter are off 10% from a year ago. This business is considered an economic bellwether.


Overall attendance at Disney's domestic theme parks fell, offsetting higher guest spending, The Wall Street Journal noted. And the company offered discounts to support attendance.


Its broadcasting business, notably the ABC network, had a 1% revenue gain to $1.18 billion but a 24% profit decline to $123 million. A problem at ABC is that advertising for its news operation is declining.


Its cable operations, dominated by the ESPN network, recorded a 9% revenue gain but only a 3% operating-profit gain. The problem: increasing costs. Broadcasting National Basketball Association games and college athletics costs more. And ESPN has been setting up a network to broadcast soccer games in the United Kingdom.


Looking out to fiscal 2010 and 2011 (ending September), analysts are more positive, Zacks Investment Research says.  Five analysts had upwardly revised fiscal 2010 numbers in the past month, and six analysts have done so for fiscal 2011 over the same time period.


Disney shares are up 10.9% on the year and had been up as much as 14.2% when the market hit a peak on April 23.


It has been a mixed bag for media conglomerates this earnings season. While Time Warner (TWX) beat earnings estimates by 27% last week, Viacom (VIA.B) came up 30% short when it posted earnings in late April.


News Corp. (NWSA) also disappointed investors. Shares are off 10.2% since peaking on April 23.


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