Disney profit beats Wall Street, shares slide

By Gina Keating

LOS ANGELES (Reuters) - Walt Disney Co posted a 26 percent plunge in quarterly earnings on Thursday, underlining the continuing effects of the recession on advertising and consumer spending, but beat Wall Street forecasts by a hair.

Disney shares slid by as much as 3.5 percent before changing direction to recover all their losses in after-hours trading.

Investors dumped shares after the No. 1 U.S. entertainment company missed revenue expectations and met its earnings target mainly through cost-cutting, Caris & Co analyst David Miller said.

"It looks like it was a cost-driven quarter," Miller added.

Disney Chief Executive Bob Iger told analysts on a conference call that the company sees, "signs of economic stabilization, but the pace and strength of the recovery remain uncertain."

Disney's two profit powerhouses, its cable networks and theme parks, seemed to have stopped a free-fall in sales for a second quarter, but have not yet turned a corner to return to growth.

Net income in the fiscal third quarter, ended June 27, was $954 million, or 51 cents per share, compared with $1.3 billion, or 66 cents a share, in the year-ago third quarter.

Excluding certain items, Disney had a profit of 52 cents a share compared with analysts' average expectation of 51 cents, according to Reuters Estimates.

Third-quarter revenue fell 7 percent to $8.59 billion from a year ago and lagged the $8.84 billion expected on average by analysts, according to Reuters Estimates.

"There were not a lot of surprises. Nothing stands out of the ordinary or anything that people would not be braced for," Edward Jones analyst Robin Diedrich said.

"In terms of cable networks, they're doing pretty good and we expected them to do a little better than some of the others (media companies). The broadcasting was, not surprisingly, more difficult," Diedrich said.

"A TURN IN THE STOCK MARKET"

Operating profit slid 13 percent at Media Networks, with a stronger performance by sports network ESPN and other cable networks masking weaker ad sales and ratings, coupled with higher programing costs, at the ABC broadcast network.

A deferral of affiliate revenue, fewer National Basketball League games and continued weakness in several major ad categories hit ESPN's revenue and profit in the quarter.

Quarterly ad revenues at ESPN, adjusted for the missing games, were down about 10 percent compared with last year's third quarter, Disney Chief Financial Officer Tom Staggs said.