May 6, 2008 / 8:12 PM / 11 years ago

Disney beats Wall Street on strong movies and parks

LOS ANGELES (Reuters) - Walt Disney Co (DIS.N) posted a better-than-expected 22 percent rise in profit as its movie studio scored hits with “National Treasure: Book of Secrets” and “Enchanted” and a weak U.S. economy failed to dampen theme park attendance.

People dressed as cartoon characters Mickey and Minnie greet visitors at Hong Kong Disneyland January 21, 2008. REUTERS/Bobby Yip

Disney’s media networks also saw a double-digit rise in second-quarter operating income due mainly to affiliate and ad rate increases and subscriber growth at sports channel ESPN.

Broadcasting shook off a Hollywood writers’ strike that ended halfway through the quarter to post a 17 percent rise in operating income, propelled by international sales of ABC Studios scripted shows like “Lost” and “Gray’s Anatomy.”

Disney joined other major U.S. media companies in outperforming expectations in the quarter, and investors rewarded the outsized results on Tuesday by boosting Disney shares by 1.6 percent in after-hours trade.

“If you didn’t know that the consumer was under tremendous pressure you would think we were in a boom if you looked at their results,” said Larry Haverty, associate portfolio manager at Gabelli Global Multimedia Trust.

“All of the big media companies are doing fundamentally very well and the market just refuses to acknowledge it,” Haverty added.

‘FANTASTIC QUARTER’

Net income in the fiscal second quarter ended March 29 was $1.1 billion, or 58 cents per share, compared with $931 million, or 44 cents per share, in the same quarter last year.

Revenue rose nearly 10 percent to $8.7 billion.

Analysts, on average, had expected earnings of 50 cents per share and revenue of $8.5 billion, according to Reuters Estimates.

“It was a fantastic quarter. Not only are theme parks doing better ... but the vast majority of the company aside from theme parks exceeded investors’ expectations, particularly the media networks,” said Rich Greenfield, analyst with Pali Research.

Disney also cheered investors by predicting that its theme parks — seen by some as a bellwether of consumer spending because of the need to plan vacations — would stay “resilient” despite rising gasoline prices and air fares.

Domestic room reservations for the rest of fiscal 2008 were trending slightly ahead of last year, though the third quarter faces a tough comparison versus last year, which had included the Easter holiday, Chief Financial Officer Tom Staggs said.

“We believe we are much better positioned in a difficult economic cycle than we were in the past,” Chief Executive Bob Iger said on a conference call with analysts. “We believe this segment can sustain success for many years to come.”

Staggs said its ABC television network was seeing “healthy” double-digit growth in spot ad sales in the third quarter.

Staggs predicted, however, that ABC would have fewer scripted shows to sell into international markets in the third quarter as a result of the writers’ strike.

At Disney Studios, the upcoming “Prince Caspian” and Disney-Pixar’s “Wall-E” would be “swing factors” in the latter half of the year, Staggs said.

Disney Consumer Products, which saw second-quarter profit drop due to lower minimum guarantees from retailers, expects costs from video game development and its repurchase of 220 Disney retail stores from The Children’s Place to cut in to profits for the rest of the fiscal year, Staggs said.

SMH Capital analyst David Miller said the mostly upbeat forecast showed Disney had managed to insulate itself somewhat against consumer whims.

“I’m not saying it’s recession proof and I’m not even saying it’s recession resistant,” Miller said. “Disney had this reputation of being such a consumer-focused media company that was so highly tethered to the economy (but) it’s less so than it used to be five or seven years ago.”

Disney shares rose 1.6 percent to $34.26 in after-hours trade following a 1.3 percent rise in regular trade.

Additional reporting by Sue Zeidler; Editing by Braden Reddall

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