But even though earnings plunged sharply, the earnings per share of 43 cents (excluding special items) still beat Wall Street expectations by three cents. CEO Bob Iger told analysts there are some signs that the weak economy may be stabilizing – but he warned that it is too early to make any predictions.
Total revenues for the company in fiscal Q2 (January-March) were down 7% to $8.09 billion and operating income dropped 29% to $1.53 billion. By comparison to other divisions, the Media Networks segment didn’t do too badly. Revenues were up 2% to $3.62 billion and operating income declined only 4% to $1.31 billion. Parks & Resorts saw revenues fall 12% to $2.41 billion and operating income was off 50% to $171 million. The movie biz was hard hit, with Studio Entertainment down 21% to $1.44 billion and operating income plunging 97% to a mere $13 million. Consumer Products had revenues rise 9% to $96 million, but operating income declined 24% to $97 million. And finally, Interactive Media had a 17% revenue decline to $129 million and posted an operating loss of $61 million, vs. $60 million a year ago.
Within Media Networks, Broadcasting revenues fell 2% to $1.42 billion. Revenues for the ABC Network fell “modestly,” but the O&O stations suffered a 30% decline. “Operating income at Broadcasting decreased 38% to $162 million for the quarter primarily due to lower advertising sales at the owned television stations and higher programming costs at the ABC Television Network due to an increase in production expenses, partially offset by increased sales of ABC Studios productions in international markets, led by ‘Ugly Betty,’ ‘Desperate Housewives’ and ‘Criminal Minds.’ Higher production expenses reflected more production activity during the current quarter compared to the prior-year quarter which was affected by the Writers’ Guild of America work stoppage,” the company said.
Cable Networks revenues increased 4% to $2.20 billion. “Operating income at Cable Networks increased 5% to $1.1 billion for the quarter due to growth at ESPN, ABC Family and the domestic Disney Channel. The growth at ESPN was driven by higher affiliate revenue primarily due to contractual rate increases partially offset by decreased advertising revenues and higher programming costs. The decrease in advertising revenues was due to a decrease in sold inventory, partially offset by higher rates. Operating income growth at ABC Family reflected higher advertising and affiliate revenue, both of which were driven by higher rates, along with higher sold advertising units, while growth at the domestic Disney Channel was driven by higher affiliate revenue due to higher rates,” Disney explained in its quarterly release.
Cable Networks includes both Radio Disney and ESPN Radio, but they are not broken out separately.
During the Q&A with analysts, Iger was asked to elaborate on his comment that Disney was seeing some signs of stability. “We were referring to businesses in general, not specifically to the advertising business, although we believe that is one that we can say we see stabilization or stability. I’d say on the parks side we haven’t seen a trend downward for a few months. The trends that we’ve seen this year are obviously reflected in our earnings and seem to be continuing and not worsening – but we’re not suggesting that we’re seeing signs of improvement in that business. Licensing would be maybe one business where we’ve seen some modest stability, but I think the retail segment in general could be facing some more difficult times and we’re not predicting necessarily a further downturn in licensing. That’s one, particularly on the international front, where I think it would be premature to say that we see stability right now. But I’d say advertising, travel and tourism for us, video sales, although that’s title specific…I guess those would be the three primary ones that are generally stable,” Iger explained.
Much of the questioning by analysts dealt with the recent decision by Disney to invest in Hulu and post ABC content on the site alongside NBC and Fox shows. Iger noted that the company had previously made deals with other third parties, such as Apple’s iTunes, to distribute its content. He said Hulu’s audience tends to be younger than the average TV viewer, so exposure on the site could bring new viewers to ABC shows. And Iger insisted that making shows available on Hulu, as well as ABC.com, won’t cannibalize TV viewing.