Disney’s Profit Plunges 30%; Shares Take Big Hit

Walt Disney Co. said its fiscal second-quarter profit fell 30% because of weaker home-video and merchandising sales and higher costs at its ABC television network.

Profit from operations fell to $269 million, or 13 cents a share, from net income a year ago of $384 million, or 18 cents, adjusted for a stock split. Earnings matched the average estimate of analysts polled by First Call Corp. Revenue rose 5.1% to $5.51 billion from $5.24 billion.

Disney’s earnings have declined for four quarters because of higher programming costs and lower ratings at ABC.

“As the years go by, it’s most assuredly apparent that Disney overpaid for ABC,” said Barry Hyman, an analyst at Ehrenkrantz King Nussbaum Inc.

Disney shares, which have declined 18% in the last year, fell $2.50, or 7.1%, to close at $32.50 on the New York Stock Exchange. That’s the biggest percentage decline in the stock since Aug. 31, when the shares fell 10.4%.

Many top industry analysts began to lower their estimates for Disney starting in September, when the company warned that fiscal fourth-quarter earnings would decline on weakness in its consumer products and film businesses.

“Disney has tremendous resources. The question is: What are they going to do with them?” said Richard MacDonald, an analyst at J.P. Morgan Securities with a “strong buy” on Disney shares.

Disney will conduct an across-the-board review of costs in response to the lackluster results, Chairman Michael Eisner said in a statement.

The Burbank-based company, which already has done some cost-cutting in its film and television divisions, will focus on increasing efficiency across all its businesses, Disney spokesman John Dreyer said. In particular, it aims to boost cash flow at its “bricks and mortar” businesses, including its theme parks and retail stores, he said.

For instance, Disney plans to concentrate on adding merchandise to its stores, as well as electronic commerce over the Internet, as opposed to opening new stores, Dreyer said.

Revenue from the Disney stores in the U.S. and worldwide merchandise licensing continued to decline in the latest quarter.