Shares of Walt Disney Co. (DIS: Charts, News, Offers) slid more than 6% on Wednesday after the company missed earnings by 8 cents, stating that it had a difficult quarter riddled with problems at the box office and lost revenue in Japan. The company had previously soundly beaten earnings last quarter, after it acquired Marvel, topped out DVD and BluRay sales of the first two Toy Story movies due to the theatrical release of the critically acclaimed “Toy Story 3,” and announced the groundbreaking of its Shanghai resort, slated to be the largest in Asia. Investors were excited by its growth prospects once more, and pushed Disney shares to fresh all-time highs. Unfortunately, the first quarter of 2011 was a hard act to follow, and in the short term many concerns weigh on the company.
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For the second quarter of 2011, Disney reported earnings of 49 cents per share, or $942 million, a penny decline from its profit of 48 cents per share, or $953 million, the same period last year. Revenue, however, increased 6% to $9.08 billion, suggesting that margins may be contracting. Analysts had expected a profit of 57 cents per share on revenue of $9.12 billion. The company took a 3% hit in its Japanese Disney theme parks and resorts, based in Tokyo, ending the quarter with operating income of $145 million. Although Tokyo Disney has since reopened, the company expects lower park attendance for the rest of the year due to lower discretionary spending. In addition, Disney’s continuous promotion of its third cruise ship, Disney Dream, coupled with rising fuel costs, hurt its theme park and resorts earnings further.
Disney also took a major hit from the box-office bomb “Mars Needs Moms,” the 3D animated movie which cost $150 million to produce but only earned $36.7 million in global ticket sales. In addition, Disney took a loss closing down Robert Zemeckis’ motion capture and animation studio, ImageMovers Digital, which was responsible for the motion capture technology seen in “The Polar Express,” “Mars Needs Moms” and “A Christmas Carol.” Disney also canceled Zemeckis’ pet project – a remake of “Yellow Submarine,” a classic Beatles cartoon, due to marketability concerns. Altogether, these losses caused Disney to report a slim operating income of $77 million for the quarter, a precipitous 65% drop from the same period last year, when it released the box office hit, “Alice in Wonderland.” For the next quarter, Disney is off to a mixed start, releasing “Prom,” which cost $9 million to make, but opened with a mere $4.7 million in domestic ticket sales. The following week it lost another 53% in sales, and although the film might break even, it comes it at far lower that originally forecast. Marvel’s “Thor,” which was produced with a $150 million budget, has already made $242 million globally on its opening weekend. This bodes well for Marvel’s upcoming “Avengers” movie, which assembles Thor, Iron Man, the Hulk and Captain America as one team.
Disney’s interactive division, which produces video games for consoles, personal computers and mobile devices, reported a loss of $115 million, due to increased costs of game development and its $763.2 million acquisition of social network game maker Playdom in July 2010. The bright spot on Disney’s balance sheet was its media networks group, which includes its TV holdings. Operating income increased 17% to $1.5 billion, due to increased advertising revenue at ESPN and an increase in subscribers and fees for Disney Channels Worldwide. Its flagship network, ABC, also gained in advertising revenue.
Although Disney has dipped, bullish analysts tout the company’s summer lineup, which includes Pirates of the Carribbean 4 and Cars 2, which are both expected to be open above the $100 million mark. Shares of Disney currently trade with a P/E of 19.5, which is still higher than its industry average of 15.5, but the company has some of the strongest brands in entertainment today.
Other News About DIS
Deutsche Bank Has Buy Rating On Disney Following Earnings
Analysts turn bullish on Disney.
Walt Disney’s Q2 Earnings Miss the Mark
Walt Disney’s earnings in review.
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Google sets aside $500 million for advertising probe
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
