Calling fiscal Q1 (October-December) “challenging,” Disney CEO Bob Iger reported that revenues overall declined 8% to $9.6 billion and net income plunged 32% to $845 million. Earnings per share of 41 cents, excluding one-time items, were below Wall Street expectations of 50 cents (and well below the 63 cents of a year ago) and the stock took a hit of over 10% in after-hours trading Tuesday.
Revenues fell 14% for Broadcasting, including ABC Television and the O&O TV stations. However, revenues for Cable Networks (which includes Radio Disney and ESPN Radio), rose 2%, with ad revenues down, but subscriber fees up.
Lower ad sales at the local TV stations was cited as the main reason for Broadcasting revenues falling 14% to $1.45 billion, although ad revenues were also down for the ABC Television Network. Also, there was a $60 million charge taken for the Tribune Company bankruptcy. Broadcasting segment operating income fell 60% to $138 million.
CFO Tom Staggs said ad sales for the O&O TV stations are “significantly behind last year” in the current quarter, although he did not quantify that. ABC Network pacings are down in the high single digits. Even so, scatter pricing is still ahead of the upfront, he said.
Citing the tough situation at the local stations, Iger noted that efforts have been made to hold down costs. “And while it might be tempting to reduce spending even more, we will not do so at the expense of our local news brands. We have concluded that they are the single most valuable assets at these stations and where we believe additional reductions would have a long-term negative impact. Our position as a market leader in local news provides us an opportunity to increase the value of these assets, even as competitors cut back,” Iger said.
Cable Networks revenues rose 2% to $2.45 billion and operating income declined 12% to $517 million. The decline in operating income was driven by decreases at the domestic Disney Channels and ESPN. “The decrease at the domestic Disney Channels was due to lower DVD sales reflecting the success of “High School Musical 2” in the prior-year quarter. The decrease at ESPN was primarily due to lower advertising revenues and higher programming and administrative costs, partially offset by higher affiliate revenue. The decrease in advertising revenues was due to a decrease in sold inventory, partially offset by higher rates. Higher programming costs reflected increased costs for NFL programming. The increase in affiliate revenue was due to higher contractual rates and, to a lesser extent, subscriber growth,” the company said.
Elsewhere, Parks and Resorts revenues declined 4% to $2.67 billion and operating income fell 24% to $382 million. Studio Entertainment revenues dropped 26% to $1.95 billion and operating income 64% to $187 million. Consumer Products revenues rose 18% to $773 million, but operating income fell 8% to $265 million. Interactive Media revenues gained 13% to $313 million, but operating income of $13 million a year earlier turned into a loss of $45 million, blamed on higher costs at Disney Interactive Studios.