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Get Four
|  | FEBRUARY 1, 2005
By Ronald Grover Disney: First the Good News... The Mouse House beat first-quarter expectations. Hitting its promised double-digit growth for 2005, however, will be a tougher act When it comes to earnings, sometimes it's tough to figure just how well a company is doing -- even if it's showing positive results. Case in point: The Jan. 31 announcement of Disney's (DIS ) first-quarter earnings, which increased by 5%, to $723 million. (Disney's fiscal 2005 first quarter covers Oct. 1-Dec. 31, 2004.) That works out to 34 cents a share, a nifty 13.3% hike over a consensus of analysts' expectations. The news was enough to send the stock up 7 cents, to $28.70, in after-hours trading. So all's well in the Magic Kingdom? Not necessarily. Disney executives delivered a hefty 64% jump in earnings last fiscal year and are hoping to give CEO Michael Eisner, scheduled to retire in September, 2006, a strong finish. And they've been heralding impressive growth for this year as well. "We remain confident in achieving double-digit earnings growth in 2005," the company said in a statement, pointing out how ratings are growing at its long-suffering ABC network, how ESPN continues to hit home runs, and how its theme parks have made strides in recovering from a jittery economy. BOX-OFFICE DUDS. Still, CFO Tom Staggs sounded a somewhat cautionary note when he admitted that Disney faces tough comparisons with the last fiscal year, when it sold hefty numbers of DVDs and videos of hits like Finding Nemo and Pirates of the Caribbean. "That gap is tough to make up, even during the rest of the year," Staggs told analysts. He pointed out, however, that Disney is counting on selling large numbers of The Incredibles DVDs and videos, due to hit the market in March. The theme-park unit showed an 11% rise in earnings, to $258 million -- although margins were down from the year-ago period, to 12.2% from 14.2%, because of giveaways to get folks into the parks in California and Floriday. The studio's earnings dropped by 27%, thanks to a spate of poor-performing films that not only failed to deliver at the box office but also didn't do much for holiday DVD and video sales. Moreover, both earnings and revenues were down at the consumer-products unit. That division sold off the Disney Store chain in November, 2004, and thus didn't benefit from holiday sales at the stores. Disney's winner this quarter was unquestionably ESPN, which charged higher ad rates and got more in affiliate fees from cable and satellite operators than was the case a year ago. That helped propel Disney's cable unit (which includes the Disney Channel and the ABC Family Channel) to a 67% spike in earnings. BIGGER EARNERS. The hits at ABC, including hot newcomers Desperate Housewives and Lost, weren't enough to keep the network from recording a surprising $8 million loss in operating earnings. That may be because of high production costs, especially for Lost. As Staggs pointed out, the shows weren't hits when ABC was selling ad time earlier in the year. Now that they are, bigger money will start rolling in later this year, he said, when leftover ad inventory is sold at the higher prices hit shows command. Still, chances are good that Eisner's loyal opponents, former board members Roy Disney and Stanley Gold, will soon be churning out press releases wondering about the double-digit earnings growth that Eisner & Co. have promised. Whether those jumps in earnings materialize could be crucial to the future of ABC President Robert Iger, who's considered the lead candidate to replace Eisner. So can Disney hit these double-digit growth targets this year? That remains a distinct possibility. But to do so, the Magic Kingdom really has to start living up to its name.  Grover is BusinessWeek's Los Angeles bureau chief Edited by Patricia O'Connell
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