Disney Income Dips but Beats Forecasts

Squeezed by a weak advertising market and a decline in theme park attendance, Walt Disney Co. reported a slight drop in income before extraordinary charges for its fiscal third quarter ended June 30.

Income for the quarter dipped 3% to $479 million, or 23 cents a share, while revenue fell 1% to $6 billion compared with a year ago.

The results exclude one-time charges related to cuts of 4,000 jobs, the closing of its Web portal Go.com and the Chicago DisneyQuest attraction.

Including all charges, Disney’s net income fell 26% to $392 million in the three months ended June 30, versus a profit of $530 million during the same period a year ago.

The results beat Wall Street’s estimates. Analysts polled by First Call/Thomson Financial expected Disney would earn 21 cents a share.

Disney is just the latest media company to feel the effects of a sluggish advertising market and a stagnant economy. Investors punished AOL Time Warner Inc.’s stock in July after the company reported a slim 3% rise in revenue for the quarter ended June 30.

Disney’s earnings report was released after the market closed. Its shares closed at $26.50, down 17 cents, and are hovering close to their 52-week low on the New York Stock Exchange.

Despite the stagnant economy, Disney still will be able to achieve single-digit gains in earnings per share this year because of extensive cost-cutting, company executives told analysts in a conference call.

“The third quarter says a lot about our company,� Disney Chief Executive Michael Eisner told analysts. “We enjoyed solid earnings and strong cash flow despite sluggishness in the economy.�

Operating income in Disney’s media networks, which include ABC and ESPN, fell 29% to $470 million.

Like other networks affected by the slack economy, ABC has been hurt by a drop in advertising spending and a slide in its ratings. Audience ratings at ABC among 18- to 34-years-olds have dropped 20% this year.

“We’re confident that our new season schedule will return ABC to No. 1 in the ratings,� Disney President Bob Iger said.

Iger and Eisner said Disney’s brand also will get a boost with the company’s recently announced $5.3-billion acquisition of the Fox Family Channel, which gives Disney a new pipeline into 81 million homes. Eisner would not comment on whether Disney would make a bid on AT&T;’s cable assets.

Income at Disney’s theme parks and resorts remained virtually flat during the quarter. Disney has added new entertainment and offered steep discounts at California Adventure in Anaheim to spur attendance at its newest park.

Walt Disney World in Orlando, Fla., also saw a decrease in attendance, though the company’s cruise line business continued to grow.

The bright spot in the quarter was the film studio, which posted $65 million in income, contrasted with a $1-million loss the prior year. Disney credited improvements in worldwide motion picture distribution tied to the releases of “Pearl Harbor,� “Spy Kids� and “Atlantis.�

Chief Financial Officer Tom Staggs said Disney will achieve its target of $500 million a year in cost savings and will save an additional $100 million through technology improvements in the company’s payroll operations.

Analysts welcomed the results.

“We’re very interested to hear that the theme park business has stabilized despite the weakness in the economy and that the cruise industry is having such good numbers,� said Laura Martin of Credit Suisse First Boston.

Jeffrey Logsdon of the investment firm Gerard Klauer Mattison said: “It’s nice to see that they’re ahead of the game in terms of being prepared by ‘leaning’ down.�