May 9 (Bloomberg) — Walt Disney Co., the No. 2 U.S. media company, probably will report a drop in second-quarter profit today as revenue from the animated film “Chicken Little” trailed last year’s “The Incredibles.”
Net income fell 7.8 percent to $606 million, or 31 cents a share, from $657 million a year earlier, according to Merrill Lynch & Co.’s Jessica Reif Cohen, ranked the top media analyst by Institutional Investor magazine. Sales rose 4 percent to $8.14 billion, she said. Stock-option costs reduced profit by about 2 cents a share in the period ended March 31, Reif Cohen said.
The movie unit’s profit probably fell by more than half from last year’s second quarter, when results were lifted by “Incredibles,” 2005’s top-selling home video. Chief Executive Officer Robert Iger oversaw last week’s $8.06 billion purchase of Disney’s partner on the film, Pixar, to help revive his animation business. Results benefited from higher ad sales at ABC television and ESPN cable networks.
“Iger has tried to take a step forward,” said Scott Benesch, an analyst at U.S. Trust Co. in New York, which owned 5.48 million Disney shares as of Dec. 31. With Pixar, Iger is “shoring up the content side of Disney’s studio.”
The average estimate from 23 analysts surveyed by Thomson Financial is also 31 cents a share. They projected sales of $8.18 billion. Thomson declined to disclose whether any costs were excluded from the estimates. Of the 27 analysts who follow Disney, 14 recommend buying the stock, 12 say hold and one says sell.
Share Performance
Shares of Burbank, California-based Disney fell 32 cents, or 1.1 percent, to $28.77 yesterday in New York Stock Exchange composite trading. The shares have risen 20 percent this year, compared with a 2.2 percent decline for New York-based Time Warner Inc., the world’s biggest media company.
Disney’s 6.375 percent notes maturing in March 2012 fell 0.85 cent to 102.82 cents on the dollar yesterday, according to Trace, the bond-price reporting system of the NASD. The yield rose to 5.79 percent.
Operating profit at the movie unit, including Walt Disney Studios and Miramax Films, fell 55 percent to $109 million, Reif Cohen said in an April 18 research note. She defines operating profit as earnings before interest, tax, amortization and corporate share expenses.
“Chicken Little,” the first fully computer-animated film made by Disney, grossed $135.4 million in U.S. and Canadian theaters, almost 50 percent less than the $261.4 million for “The Incredibles,” according to sales tracker Box Office Mojo LLC. “Chicken Little” was released on DVD in March.
Video sales of “Incredibles” totaled more than 15 million DVDs and tapes, according to trade publication Video Business. Through the end of March, “Chicken Little” was the sixth- biggest seller this year.
Pixar Partnership
Before last week’s purchase, Disney co-financed and distributed Pixar films. Pixar’s “Cars,” scheduled to open June 9, and the “Pirates of the Caribbean” sequel, to be released July 7, will add to Disney’s results this year and in fiscal 2007, Benesch said.
Iger, 55, bought Pixar after deciding that Disney’s animation unit, home to Mickey Mouse, Snow White and Cinderella, hadn’t created any recognizable animated characters in the past decade.
The Pixar purchase also brought in Steve Jobs, CEO of both Pixar and Apple Computer Inc. Jobs is now Disney’s largest shareholder.
“He’ll bring a very exciting perspective to the business,” said Peter Goldman, a fund manager at Chicago Asset Management in Chicago who helps oversee about $750 million, including about 400,000 Disney shares.
Advertising Shift
Jobs may help Iger in his efforts to capture the shift in advertising onto the Internet and new devices such as Apple’s iPod player and mobile telephones. ABC was the first to put programs on the iPod and in April said it would offer the television shows “Lost” and “Desperate Housewives” on the Web.
Iger wasn’t available to comment, Disney spokesman David Caouette said. When Iger took over from Michael Eisner in October, Disney said he would receive $9.25 million in his first year as CEO.
Rising ad sales at the broadcast and cable divisions are helping Disney’s earnings. ABC climbed to first place among broadcast networks with hit shows “Desperate Housewives,” “Lost” and “Grey’s Anatomy.” In the television season through April 30, ABC tied with News Corp.’s Fox among 18- to 49-year-old viewers, according to Nielsen Media Research.
The success allowed the broadcast division to more than double operating profit to $100 million from $38 million, Reif Cohen wrote. Cable profit rose 4.5 percent to $692 million.
ESPN, the most-watched sports channel, was helped by an increase in ad spending and higher fees paid by cable and satellite operators.
Profit at the consumer-products unit, which licenses Disney brands, may have fallen 34 percent to $70 million, Reif Cohen estimated.
Parks and resorts posted a 6.6 percent rise in operating profit to $195 million, Reif Cohen said, helped by promotions for Disneyland’s 50th anniversary.
To contact the reporters on this story:
Alex Armitage in Los Angeles at aarmitage@bloomberg.net
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