Disney Doubles Quarterly Profit

The media giant's earnings sailed past analysts' forecast, but the stock slumped as some analysts worry that the performance may not be repeatable

The Walt Disney Company (DIS) more than doubled its profit during the recent quarter, as people kept going to theme parks, television networks sold more ads, and box office hits like "Pirates of the Caribbean: Dead Man's Chest" made earnings sail ahead.

The Burbank, Calif.-based media giant said late Nov. 9 that its net income rose 106% to $782 million during the quarter ended Sept. 30 compared to the year ago period.

"Disney had a spectacular year," said Bob Iger, president and chief executive officer of the Walt Disney Company, in a press release. "It is a result of the incredible creativity at our company."

Since taking over recently, Iger has slashed costs at Disney and reorganized the business. On Feb. 6, 2006, for example, Disney announced a plan to sell its ABC Radio Network to Citadel Broadcasting Corp. for around $2.5 billion. Meanwhile, Disney bought the digital animation studio Pixar for $7.5 billion in a deal that closed on May 5.

Disney's results during the recent quarter came from improvements at many different businesses, according to the company press release. Media networks' operating income grew by 18% to $883 million during the recent quarter compared to the year ago period. Walt Disney's sports network ESPN and its ABC Television Network benefited from things like higher rates on the advertising they sold.

Parks and resorts' operating income increased 28% to $396 million, as Walt Disney World benefited from rising hotel room rates and increased spending by its guests. It also had better attendance after opening the new attraction Expedition Everest in April 2006. Theme park results also improved amid factors such as earnings from the new Hong Kong Disneyland Resort, which is in its first year of operation.

Disney's movie business fared decently too. Studio Entertainment operating income increased to $214 million from a $313 million loss during the same quarter of 2005. Johnny Depp's recent hit "Pirates of the Caribbean: Dead Man's Chest" helped, along with other things like lower costs as Miramax released fewer movies.

Disney's stock fell 3.8% to trade at $32.32 in early trading on the New York Stock Exchange Nov. 10, after having hit a 52-week high of $33.85 on Nov. 9.

Some analysts worried that Disney might not be able to repeat its performance in the coming year, as the company did not provide specific financial forecasts for fiscal year 2007 (ending September). But others liked what they saw. "We view [Disney's] results as stellar," said Standard & Poor's Equity Research analyst Tuna Amobi in a research note, as he upgraded the stock to strong buy from buy. He noted that its September-quarter EPS was in line with his estimate, but three cents above the Street's forecast. "With 2006 holidays likely to sustain early fiscal year 2007 momentum, we see underlying trends robust at film studio (theatrical/DVD), solid at theme parks (traffic/occupancies), and strong at core media nets (ads/affiliate fees)," Amobi says. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.)

He notes that Disney sees $700 million fiscal year 2007 digital revenues (online/mobile), implying 40% growth, as it prepares for a greater push into video games development. Amobi raised his target price for the stock by $3 to $38.