Disney loses some magic on cable TV and dollar hit

Walt Disney Co fell the most in four years after posting third-quarter sales that fell short of analysts’ estimates and cutting its forecast for cable-TV profit.

Disney, which had been the top-performing stock in the Dow Jones Industrial Average this year, said operating income will be reduced by $500m (€456.6m) next year as a result of the strong dollar. The stock slid 8.4% at one stage in New York.

The company is facing two challenges: fewer subscribers at cable networks such as ESPN, its biggest business, and foreign exchange losses from the strong dollar that are cutting results for both cable TV and international theme parks. The warning unsettled investors accustomed to stellar sales and profit from the Burbank, California-based company.

“Investors have become increasingly concerned about what kind of growth, if any, they can count on for ESPN going forward,” said Paul Sweeney, a Bloomberg Intelligence analyst. ESPN is wrestling with a shrinking subscriber base and rising programme costs. Disney expects affiliate revenue from pay-TV providers like Comcast to fall short of previous forecasts, chief financial officer Christine McCarthy said on Tuesday. That, along with foreign exchange losses, will limit cable profit growth, she said.

That’s led Disney to cut its forecast for cable profit, suggesting the company will struggle to boost earnings in that division next year. Revenue for the third quarter ended June 27, while up 5.1% to $13.1bn, missed analysts’ forecasts of $13.2bn.

Heading into late-Tuesday’s report, Disney had an enviable record of beating forecasts. It’s been two years since revenue missed analysts’ estimates. Income declined at the company’s international theme parks because of higher costs at Disneyland Paris and lower attendance in Hong Kong. Including domestic parks, the division posted a 4% gain in revenue to $4.13bn, while profit increased 9% to $922m, the company said. Resorts are Disney’s second-largest business.

Operating income at Disney’s TV networks division grew 4% to $2.38bn, led by domestic networks such as the Disney channels, ABC Family and ESPN. Broadcaster ABC’s profit tumbled 15% because of higher programme costs and lower advertising revenue. Profits in consumer products, from licensing Disney characters such as Mickey Mouse and Iron Man to toy makers and other manufacturers, grew 27% to $348m. Revenue expanded 6% to $954m.

The company’s third quarter included theatrical results from Age of Ultron, the second-highest-grossing domestic film this year, as well as Cinderella, that has taken in almost $540m (€495m) worldwide. Studio revenue rose 13% to $2.04bn, while profit increased 15% to $472m.

Bloomberg


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