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Analysts see strong Q3 for Disney
2006-08-04
Walt Disney Co. is expected to post a higher quarterly profit on strong sales in its entertainment business, but growth will slow as it absorbs charges from a bold strategy launched by Chief Executive Bob Iger, analysts say. Disney (NYSE:DIS) is scheduled to report results on August 9. Since October, Iger has presided over the purchase of Pixar Animation Studios, the sell-off of radio stations and in July announced a refocusing of Disney's studio division to cut movie output and eliminate 650 jobs, or 20 percent of personnel. While the studio cuts are expected to ultimately save $100 million, some analysts estimate they will add severance charges for some of $20 million to $30 million for Disney's 2006 fiscal year, which ends in September. The all-stock Pixar purchase was already expected by Disney to dilute earnings by 10 cents a share in fiscal 2006. Sanders Morris Harris analyst David Miller said Disney's consumer products division had a "monster quarter" due to merchandise from the Pixar animation 'Cars' and Wall Street was waiting to see how well the theme parks fared. "The theme park line will get a lot of attention. A lot of analysts are anxious to see whether Disneyland (and other parks were) affected by high gas prices," Miller said. Miller was also looking for news on the financial impact of Disney's sale of 22 ABC radio stations and ABC Radio Networks programming business to Citadel Broadcasting Corp. Miller has a 'buy' rating on Disney and does not own shares. Analysts, on average, forecast Disney's fiscal third quarter earnings, excluding special items, at 44 cents per share, up from 42 cents per share a year earlier. They saw revenue rising 11.3 percent to $8.59 billion. Most analysts agree Disney's four business units performed well. Its media networks business benefited from continued high ratings at ABC, home of 'Desperate Housewives' and 'Lost,' and at sports cable network ESPN and the Disney Channel. The studio division released 'Cars' and the DVD for 'The Chronicles of Narnia: The Lion, the Witch and the Wardrobe' during the quarter. 'Cars' and a Disney Channel show called 'High School Musical' drove strong merchandise sales, while the parks and resorts division still showed growth from Disneyland's 50th anniversary marketing, despite high gasoline prices. Merrill Lynch analyst Jessica Reif Cohen, who has a 'buy' rating on Disney shares, said in a July 21 note she expects "a significant acceleration" in the third quarter. But she and Soleil Research analyst Laura Martin have cut their earnings estimates for the fiscal year in anticipation of higher spending on a greater number of ABC pilot shows. Iger has generally enjoyed high marks from Wall Street since he took over from longtime CEO Michael Eisner, but analysts are grappling with the near-term impact of his strategy changes. Wall Street forecasts that earnings, excluding special items, will fall from the third quarter to 32 cents per share in the fourth quarter. The fiscal 2006 forecast is $1.47 per share. CIBC World Markets said in an August 2 note that Disney was set to deliver single-digit EPS growth in 2007, rather than the double-digit growth the company forecast through 2008, due to fewer shows in syndication, difficult ratings comparisons at ABC, slower growth at theme parks and a full year of Pixar dilution. The company's shares rose 14 percent during the quarter, between a low of $27 and a high of $30.74. They were trading at around midday on $29.97 on Friday.
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