Disney issues a ‘sobering outlook’

Walt Disney Co. said Thursday that earnings skidded 13% for its fiscal fourth quarter, and executives gave what they called a “sobering outlook” for its current year because of slowing television advertising sales and theme park resort bookings.

Net income dropped to $760 million, or 40 cents a share, for the quarter ended Sept. 27, compared with $877 million, or 44 cents, for the same period last year. Revenue increased 6% to $9.4 billion from $8.9 billion.

Excluding one-time charges, the Burbank entertainment giant’s earnings were 43 cents a share, well short of analysts’ estimates of 49 cents, according to a survey by Thomson Reuters.

“The quarter was uglier than anyone anticipated,” said Janna Sampson, co-chief investment officer at Oakbrook Investments. “Going forward, it becomes a question of how long and how deep this economic recession will last. And that’s very, very difficult to predict.”

Disney Chief Executive Bob Iger, though, was more upbeat.

“Despite a steadily weakening economy, we delivered very solid results for the year,” he said.

The quarterly results helped drag down annual earnings. For the year, net income was $4.4 billion, or $2.28 a share, a 5.5% decrease from $4.7 billion, or $2.25 a share, in the previous fiscal year. Meanwhile, Disney hauled in record revenue of $37.8 billion, a 7% increase from $35.5 billion last year.

That wasn’t enough to cheer investors, however. Disney shares fell $1.42, or 5.9%, to $22.81. The company released its results after the markets closed, and its stock tumbled as much as $1 a share in after-hours trading.

Tougher times could lie ahead.

“In recent weeks, as the economy deteriorated, our pace of business has been impacted,” Iger said. “We have seen significant softening in the local ad market as well as a slowing of the pace of national advertising.”

Nearly 20% of the company’s revenue comes from advertising.

For the quarter, Disney’s media networks division -- overseeing both cable and broadcasting -- generated $4.2 billion in revenue, 4% higher than last year’s final quarter. Operating income was flat at $1.1 billion.

Quarterly operating income for the cable networks increased $116 million, to $1.2 billion, in large part because of higher ESPN cable subscriber fees. But those gains were partially offset by lower advertising revenue. ESPN relies on auto advertising, which has been dramatically cut back because of sluggish auto sales. Ads for electronics and financial firms also are down, Iger said.

Disney’s broadcasting unit, which includes the ABC network and 10 TV stations, posted an operating loss of $150 million, compared with a $33-million loss in the previous year’s fourth quarter. Increased spending to cover the presidential election and higher costs for ABC pilots contributed to the loss.

Iger warned that ABC, like most other major broadcasters, was experiencing lower prime-time ratings this season. And, despite an influx of political dollars, “advertising revenue at our stations is off considerably compared to this time last year,” he said.

The sprawling parks and resorts division performed better. Revenue increased 7% to $3 billion for the quarter; operating income fell 4% to $412 million.

But Chief Financial Officer Tom Staggs said bookings for the first half of this year were off by as much as 10%.

Disney said it would try to entice visitors to stay longer at Walt Disney World in Florida. During the first six months of next year, people who stay for four nights at a hotel there will qualify for an additional three nights free. The company also promised a $200 Disney gift card to those who quickly took advantage of the deal.

In its studio entertainment division, revenue decreased 5% to $1.5 billion and operating income fell $70 million to $98 million. Home entertainment sales and rentals of such movies as “Pirates of the Caribbean: At World’s End” and “Ratatouille” were weaker than in 2007, when Disney had such DVD releases as “Pirates of the Caribbean: Dead Man’s Chest” and “Cars.”

“Hannah Montana” and “High School Musical” merchandise helped boost the consumer products division. For the quarter, the segment’s revenue increased 41% to $812 million while its operating income rose 14% to $176 million.

Iger said top executives had been looking to eliminate expenses to help get through a recession. However, he did not specify what divisions might be targeted or what cuts, including staff reductions, would be made.

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Bloomberg News was used in compiling this report.

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meg.james@latimes.com