Disney earnings show modest growth
But Wall Street pushes the shares below $67 after hours. ESPN drives Disney's profit gains, but the company expects a writedown of at least $160 million from 'The Lone Ranger.'
Shares of Walt Disney (DIS) moved lower in after-hours trading Tuesday, after the entertainment giant conceded it would take a huge loss from "The Lone Ranger" film.
Still, fiscal-third-quarter earnings of $1.03 a share net of one-time charges beat the Wall Street estimate of $1.01 and year-earlier earnings of $1.01.
Revenue was up 4.4% to $11.58 billion but missed the Street estimate of $11.64 billion. Shares were off $1.27, or 1.9%, to $65.78 in after-hours trading. The shares had risen $1.03 to $67.05 in regular trading.
As expected, the company's cable broadcasting networks, especially the ESPN network, fueled profits. Its broadcasting business, however, reported no growth in revenue and a 21% decline in operating profit.
The Disney results came on a day when stocks generally took a bit of a swoon.
The Dow Jones industrials ($INDU), of which Disney is a component, closed down 93 points to 15,519. The blue chips had been down as many as 139 points in the morning, in large part because of a downgrade of IBM (IBM). IBM fell $4.51 to $190.99, good for 35 points of the Dow's loss.
Disney, the fourth-best Dow performer this year with a 33% gain, may weigh on the markets on Wednesday. Futures trading suggests U.S. stocks will open lower on Wednesday.
Disney's "studio entertainment" business did show mixed results because of "The Lone Ranger." The film, starring Johnny Depp at Tonto, has grossed $88.8 million so far domestically. It reportedly cost $250 million to make. The company said it would take a write-down of $160 million to $190 million from the film in its fourth quarter. Final numbers will come after the film has been fully released. It doesn't get to Japan until September.
The company's studio entertainment business reported a 2% revenue decline to $1.59 billion in the quarter and a 36% decline in operating profit to $201 million. Much of that was due to heavy marketing costs for "The Long Ranger" and "Iron Man 3"
"The Lone Ranger" failure will be more than offset by the successes of "Monsters University," which has generated $259 million in box office receipts since its June 21 release, and "Iron Man 3," which has sold more than $1 billion in tickets world-wide.
While "The Lone Ranger" looks like an expensive bust, its overall impact on Disney is relatively modest.
Disney really isn't a movie company. It's a television company first, then a theme-park operator and finally a movie company. About 46% of revenue and more than 68% of operating profit in the third quarter came from its Media Networks business, especially the ESPN sports network.
Theme parks represented about 32% of revenue and 21% or so of operating profit. Studio entertainment is just 13.7% of revenue and 6% of operating profit. In fact, the Media Networks' profit in the fiscal third quarter -- $2.3 billion -- was bigger than the movie business's revenue of $1.59 billion.
On Tuesday's conference call, Disney Chairman and CEO Robert Iger (pictured above with Mickey) and Jay Rasulo, chief financial officer, said the theme parks business and ESPN are very strong. Disneyland and the Tokyo Disney Resort have seen record attendance this year. Where there's softness is at Disneyland Paris (formerly known as Euro Disney), which is having to contend with Europe's ongoing struggles with an extended economic slump.
They see strong growth ahead from ESPN for the next several years at least. The network will be broadcasting the U.S. Open Tennis Tournament and will Southeastern Conference football.
The movie business should do well as films from Marvel, Pixar and Lucasfilm start to come out. Disney bought Lucasfilm Ltd., the producer of the "Star Wars" franchise, from producer George Lucas for $4.05 billion in 2012. The first new Star Wars film is expected to be released in 2015.
While Disney shares were struggling after hours, 21st Century Fox (FOXA) shares were up 50 cents to $32 after reporting a 68% gain in earnings from continuing operations. Revenue grew 15.7% to 7.2 billion in the company's fiscal-fourth quarter. The shares had slipped 13 cents to $31.23 in regular trading.
21st Century Fox contains the broadcasting, cable and studio entertainment businesses of News Corp. (NWSA). News Corp. contains the publishing, digital education and Australian media businesses.
While the Dow fell 93 points, the Standard & Poor's 500 Index ($INX) was off 10 points to 1,697. The Nasdaq Composite Index ($COMPX) fell 27 points to 3,666. The 10-year Treasury yield was up slightly to 2.652%.
The price of gold (-GC) fell $16.90 to $1,285.50 an ounce, its first settlement below $1,300 an ounce since July 19. Crude oil (-CL) in New York fell $1.26 to $105.30 an ounce.
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