Disney’s third-quarter profit declines 26%

Walt Disney Co. reported a 26% drop in profit for its fiscal third quarter as the weak economy continued to take its toll on television advertising, DVD sales and the theme parks.

Revenue and operating income declined across virtually every division of the Burbank media conglomerate’s operations, although company executives told analysts they saw evidence of a recovery. Net income fell to $954 million, or 51 cents a share, compared with $1.3 billion, or 66 cents, a year earlier. Revenue declined 7% to $8.6 billion. Analysts polled by Thomson Reuters had expected net income of 50 cents a share on sales of $8.83 billion.

“We do see signs of economic stabilization,” Disney Chief Executive Robert Iger told analysts. “But the pace and strength of recovery remain uncertain and we are managing accordingly.”

Walt Disney Studios was the most dramatically affected, posting an operating loss of $12 million for the quarter ended June 27 -- its first such loss since 2005.

Despite the strong box- office performance of Disney-Pixar’s animated film “Up” and “Hannah Montana: The Movie,” studio revenue dropped 12% to $1.3 billion. The results were weighed down by the marketing costs associated with hit films such as “The Proposal,” whose benefits will accrue later in the year. It also absorbed much of the expense of launching the 3-D guinea pig action film “G-Force,” which topped the box office last week, even though Chief Financial Officer Tom Staggs noted that “it’s going to be less of a financial success.”

Home entertainment revenue was also weak compared with a year earlier, when the studio released “National Treasure: Book of Secrets” and “Enchanted,” which lifted DVD sales.

Iger, who offered an unflinching appraisal of the studio three months earlier, expressed enthusiasm for the studio’s forthcoming releases, including the traditionally animated Disney film “Princess and the Frog” and Robert Zemeckis’ “Disney’s A Christmas Carol.” He also lavished praise on “Up,” which he hailed as an “artistic triumph” and “big commercial success,” even though it’s not the sort of film that would lend itself to the traditional Disney merchandising machinery.

“ ‘Up’ is not the kind of movie that’s going to generate the kind of multi-platform franchise success of movies like ‘Cars’ or ‘Toy Story,’ ” Iger said, adding, “That’s fine with us. We can’t set out to make every film . . . as a franchise.”

Disney’s media networks division, which includes ABC and the cable networks and is usually a bright spot for the company, reported a 2% drop in revenue for the quarter to $4 billion, while operating income declined 13% to $1.3 billion. Broadcaster ABC took the biggest hit, with a 34% plunge in operating income, reflecting a continued soft ad market for the local TV stations as well as higher programming costs.

The ad market appears to have stabilized, Staggs said, but he added that buyers were waiting to place ads closer to the time when they air.

Operating income at Disney’s cable networks was $1.1 billion, down 8%, and revenue slipped 1% to $2.6 billion, largely because of a wrinkle in how Disney accounts for revenue it receives from cable and satellite providers. ESPN is contractually obligated to furnish a certain amount of live sports programming, but didn’t reach that threshold until early in the fourth quarter, Staggs said. This caused the company to defer about $37 million in revenue.

Parks and resorts, which tend to be slower to respond to and recover from dips in the economy, saw a 9% drop in revenue to $2.7 billion and a 19% decline in operating income to $521 million, as more visitors streamed into Walt Disney World in Orlando, Fla., and Disneyland Resort in Anaheim but spent less. Domestic park attendance rose 3%, helped in part by the timing of Easter vacation. But hotel, ticket and meal promotions used to lure visitors, while moving the turnstiles, also undercut operating margins.

The parks’ performance nonetheless represents an improvement over the fiscal second quarter, when operating income was off 50% from a year earlier.

Disney’s interactive media division, which oversees online content and video games, including Club Penguin, reported a 20% drop in revenue to $113 million. But it narrowed its operating loss to $75 million from $91 million last year because of reduced marketing and product-development costs for games.

Consumer products revenue fell 10% to $510 million, and operating income decreased 37% to $96 million. The division was hurt by the weak retail environment and a 14% decline in licensing royalties from the previous year, when sales were more brisk for “High School Musical” and “Hannah Montana” merchandise.

Disney shares fell 82 cents in after-hours trading Thursday to $25.40. They had risen 33 cents to close at $26.22.

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dawn.chmielewski@latimes.com