Los Angeles - Costs to market the box-office disappointment The Lone Ranger and shrinking revenue at television network ABC had held back fiscal third-quarter profit, Walt Disney said after the market closed on Tuesday.
Net income was little changed at $1.85 billion (R18.3bn) in the three months to June compared with $1.83bn a year earlier, the world’s largest entertainment company said. Profit came to $1.03 a share excluding items, compared with the $1.01 average of 30 analysts’ estimates compiled by Bloomberg.
Disney expects to record a loss of as much as $190 million this quarter on The Lone Ranger, which cost $225m to make and has produced less in box-office sales.
The company’s ESPN, A&E and domestic children’s cable channels, along with the popular theme parks, continue to spur growth for Disney as film profits slide and the ABC broadcast division struggles.
“There has been a lot said, I know, about the risk of basically high-cost, tentpole films, and we certainly can attest to that given what happened with Lone Ranger,” chairman and chief executive Robert Iger said. “We still believe that a tentpole strategy is a good strategy. One way to rise above the din and the competition is with a big film, not just a big budget, but a big story, big cast, big marketing behind it.”
Disney fell 4.1 percent to $64.33 at 9.33am in New York. The stock had gained 35 percent this year through Tuesday.
“If you strip everything aside, it was maybe a tad light compared to what people were expecting,” Matthew Harrigan, an analyst at Wunderlich Securities, said of the earnings. He has a hold rating on the stock.
Sales increased 4.4 percent to $11.6bn in the period to June, compared with the $11.7bn average of 27 analysts’ estimates. Disney’s film studio posted a 36 percent drop in profit to to $201m due to pre-release marketing costs of the The Lone Ranger and lower revenue from Iron Man 3, compared with last year’s mega-hit The Avengers.
The Lone Ranger, featuring Armie Hammer in the title role and Johnny Depp as his sidekick Tonto, has collected $176m in worldwide ticket revenue since its July 3 release, according to Box Office Mojo, an industry website. Studios split those receipts with theatre owners and incur additional costs marketing their pictures.
Operating income at Disney’s media networks, the company’s largest group, rose 8.2 percent to $2.3bn. Growth in fees from pay-TV services and advertising at networks, including ESPN, countered higher programming costs and lower revenue from the ABC broadcast business. Sales increased 5.3 percent to $5.35bn, Disney said.
Costs at the ABC network rose as the broadcast division aired fewer shows made internally and acquired more programming from outside producers, according to the statement.
The ABC network lost about 6 percent of its audience in the television season that ended in May and saw a 10 percent drop in the younger viewers that advertisers target, according to Nielsen data.
Investments and an improving economy lifted profit at Disney resorts and theme parks, where earnings rose 9.4 percent to $689m on 7 percent higher attendance and more spending by tourists.
The company said projects such as MyMagic+, a wristband for guests that serves as an admission ticket, room key and credit card, led to higher costs. The Florida parks are benefiting from the new Disney’s Art of Animation resort and the expansion of the Magic Kingdom.
Consumer products profit rose 4.8 percent to $219m, while losses at the company’s interactive division increased to $58m from $42m a year earlier.
“Given the number of headwinds we faced, we are very pleased with the financial results we delivered,” Disney chief financial officer Jay Rasulo said. – Bloomberg
