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The Disneyland Report > Disney News > Walt Disney Company earnings for quarter and nine months ending July 2 announced

Disney News

Walt Disney Company earnings for quarter and nine months ending July 2 announced

The Walt Disney Company (DIS) this week reported earnings for the quarter and nine months ended July 2, 2005. Diluted earnings per share (EPS) for the third quarter increased 41% to $0.41, compared to $0.29 in the prior-year quarter. For the nine-month period, EPS was $1.09, up 24% compared to $0.88 recorded in the prior-year period.

"Once again, The Walt Disney Company has posted a quarter of strong earnings growth," said Michael Eisner, Disney's Chief Executive Officer. "Our record third quarter performance is a direct consequence of long-term actions we have taken to position Disney as a global leader in providing quality entertainment, whether on television, on film, on the stage, in theme parks, in consumer products or through emerging technologies, such as the Internet, electronic video games and wireless services. Wherever and whenever people seek entertainment, Disney will be there."

"The third quarter provided a great sampling of the breadth and strength of The Walt Disney Company," said Robert Iger, President, Chief Operating Officer and CEO-elect. "Our largest segment, Media Networks, continued to turn in stellar performance, while Parks and Resorts successfully launched the global celebration of Disneyland's 50th anniversary. Although the studio is facing a challenging environment, we are excited by such upcoming projects as `Flight Plan,' `Chicken Little' and `The Chronicles of Narnia.' Also just ahead is the opening of Hong Kong Disneyland, which will serve as a platform for growth in the world's most populous nation. Looking ahead, we will remain focused on leveraging the strength and reach of our established properties to take advantage of the opportunities proffered by new technologies and market expansion around the world."

EPS growth of 41% in the quarter was driven by operating income growth at Media Networks which increased by $325 million and Parks and Resorts which increased by $27 million. This growth was partially offset by decreases of $62 million at Studio Entertainment and $15 million at Consumer Products.

Current quarter EPS included a $26 million gain on the sale of the Mighty Ducks of Anaheim, a $32 million partial impairment charge for a cable television investment in Latin America, and a $24 million write-down related to the MovieBeam venture. In aggregate, these items reduced current quarter EPS by $0.01 per share. The prior-year quarter's EPS included restructuring and impairment charges of $56 million, or $0.02 per share, recorded in connection with the disposition of the Disney Stores North America.

The current nine-month EPS also included a $61 million benefit from the restructuring of Euro Disney's borrowings and a $24 million benefit from the favorable resolution of certain income tax matters. These benefits were partially offset by a $32 million charge to write down an investment and restructuring and impairment charges related to the sale of the Disney Stores North America of $26 million. In aggregate, these items, along with the current quarter items mentioned above, had a net effect of less than a $0.01 on EPS for the current nine-month period.

Walt Disney Company Operating Results:

Media Networks

Media Networks revenues for the quarter increased 16% to $3.4 billion and segment operating income increased 48% to $998 million. See Table A for further detail of Media Networks results.

Segment operating income attributable to Cable Networks increased by 38% to $729 million compared to $529 million in the prior-year quarter due to growth at ESPN. The increase at ESPN was due to higher affiliate revenues which resulted from an increase in contractual rates, recognition of previously deferred revenues related to annual programming commitments and subscriber growth.

Segment operating income attributable to Broadcasting increased by $125 million to $269 million compared to $144 million in the prior-year due to improved performance at the ABC Television Network partially offset by higher spending at Television Production as more pilots were produced. The growth at the ABC Television Network was due to lower primetime programming costs, higher advertising rates and improved primetime ratings.

Disney Parks and Resorts Revenues

Parks and Resorts revenues for the quarter increased 7% to $2.4 billion and segment operating income increased 6% to $448 million.

Revenue and segment operating income growth was due to improvements at the Walt Disney World and Disneyland Resorts, reflecting higher guest spending at both resorts, higher occupancy at Walt Disney World and higher attendance at Disneyland Resort, partially offset by increased costs and expenses at both resorts and $25 million of pre-opening costs at Hong Kong Disneyland.

Higher guest spending at Walt Disney World reflected ticket price increases and fewer promotional offers compared to the prior-year quarter. During the quarter, the Company launched two new programs, "Disney's Magical Express" and "Extra Magic Hours," which are designed to increase occupancy at Walt Disney World hotels. Higher costs and expenses reflected an increase in marketing due to the "Happiest Celebration on Earth" promotion which celebrates the 50th anniversary of Disneyland and costs associated with new attractions and the new service programs.

Higher guest spending and attendance at Disneyland Resort were due to increased ticket prices and the 50th anniversary celebration, respectively. Increased costs and expenses reflected higher marketing and sales costs due to the 50th anniversary celebration and higher volume related expenses.

Parks and Resorts segment results for both the current and prior-year quarters include the consolidated results from Euro Disney and Hong Kong Disneyland, although these operations are only partially owned by the Company. For the current year quarter, Euro Disney and Hong Kong Disneyland accounted for $311 million in revenue and $345 million in expenses in the segment results discussed above. In the prior-year quarter, revenues and expenses for these operations totaled $332 million and $317 million, respectively. See tables C, D, E and F for the impact of consolidating Euro Disney and Hong Kong Disneyland.

Walt Disney Company Studio Entertainment

Studio Entertainment revenue for the quarter decreased 15% to $1.5 billion and segment operating income decreased $62 million to a loss of $34 million.

The decline in segment operating income was due to a decrease in worldwide home entertainment (home video), which was partially offset by an increase in worldwide theatrical motion picture distribution. Additionally, the current quarter benefited from improved television distribution results and lower film cost write-offs.

Worldwide home entertainment operating income declined due to lower overall unit sales in the current quarter as there were fewer strong performing titles. Prior-year quarter titles included "Kill Bill: Vol. 1," Disney/Pixar's "Finding Nemo," "Scary Movie 3," "Bad Santa," "Brother Bear" and "Cold Mountain" while current quarter titles included "National Treasure," "The Pacifier" and Disney/Pixar's "The Incredibles." Additionally, the Company observed a decline in home video unit sales for feature films relative to the related total domestic box-office results.

Worldwide theatrical results were driven by lower promotional spending on films to be released in the fourth quarter compared to the prior-year quarter and lower distribution costs as there were fewer releases in the current-year quarter.

Consumer Products Division of the Walt Disney Company

Revenues for the quarter decreased 23% to $418 million and segment operating income decreased 20% to $61 million.

The overall decline in segment revenues was due to the sale of the Disney Store North America in November 2004. Lower operating income for the quarter was driven by increased product development spending at Buena Vista Games. Growth at merchandise licensing was driven by increases at hardlines and softlines in North America and Europe.

Walt Disney Company Corporate and Unallocated Shared Expenses

Corporate and unallocated shared expenses increased 25% to $124 million. The increase was primarily due to the absence of reductions in litigation reserves which were recorded in the prior-year quarter.

Source: Walt Disney Company Press Release

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