Little magic for Walt Disney

NEW YORK (CNNMoney.com) -- Walt Disney, the media company that owns the ABC TV network and Disney movie studio, said Tuesday that earnings for its fiscal second quarter increased 27 percent, topping analysts' expectations.

Disney, which also owns the ESPN cable network and a global theme parks business, reported a net profit of $931 million, or 44 cents a share. Analysts were expecting the House of Mouse to report earnings of 38 cents a share.

Disney CEO Bob Iger was confident about the company's summer movie slate as well as ABC's upcoming upfront presentation to advertisers.

But the Burbank, Calif.-based firm also reported sales increased just 1 percent to $8.07 billion, narrowly missing Wall Street's consensus target of $8.13 billion.

Shares of Disney (Charts, Fortune 500) slipped more than 2 percent in after-hours trading following a nearly 1.4 percent gain in regular trading on the New York Stock Exchange.

Disney reported flat sales in its media networks business, which includes ABC and ESPN, as broadcast revenue fell 7 percent. Disney said the absence of the Super Bowl, which ABC broadcast in 2006 but not 2007, hurt sales.

But operating income at the networks unit surged 21 percent, led by a 33 percent increase in profits at the broadcasting segment.

One analyst said the sell-off in Disney's stock due to the slightly lower than projected sales figure might be an overreaction.

"The revenue miss is not a concern because the media networks division was flat and that can almost entirely be explained by not having the Super Bowl this year. Generally speaking, investors shouldn't have been disappointed," said Robin Diedrich, an analyst with Edward Jones.

The company's studio entertainment division reported a sales decline of 13 percent from a year earlier, but operating profit increased 60 percent from a year earlier, thanks largely to box office hits "Wild Hogs" and "Bridge to Terabithia."

But Disney's theme parks business and consumer products divisions were actually the strongest performers from a sales perspective. Theme park revenue increased 9 percent from last year and consumer product sales increased 14 percent from the same period a year ago.

Nonetheless, Disney Chief Executive Officer Bob Iger expressed confidence that the company's networks and studio divisions, which combined to account for nearly two-thirds of Disney's sales and about 80 percent of operating profits in the quarter, would perform even better later this year.

During a conference call with analysts, Iger said that the next few months would be "an exciting time creatively" for Disney since it will have "Pirates of the Caribbean: At World's End," the third movie in the wildly successful film trilogy, coming out later this month, and "Ratatouille," the latest animated movie from Pixar, which Disney acquired last year, hitting theaters in June.

He said the strong debut of "Spider-Man 3," which grossed $151.1 million in the U.S., breaking the opening weekend box office record set last year by "Pirates of the Caribbean: Dead Man's Chest," is a good sign for Hollywood.

"The early success of 'Spider-Man' bodes well for the movie industry this summer," Iger said.

David Joyce, an analyst with Miller Tabak & Co. said some investors may be doubting Disney's ability to do as well as last year since "Pirates" and the Pixar movie "Cars" were the two biggest hits of the summer of 2006. But Joyce said these worrieswill probably turn out to be for naught.

"I think there is some nervousness that Disney will have difficult comparisons to last year but I think they should replicate last year's success," Joyce said.

Iger added that he had high hopes for "High School Musical 2," the sequel to the popular Disney Channel movie. That film, which has spawned a multi-million dollar cottage industry for Disney that includes soundtracks, DVDs, a concert tour and even an ice show, will air on the Disney Channel in August.

In addition, Iger said that the current ad market for broadcast television "looks strong," an encouraging sign as ABC and the other networks get set to unveil their fall TV schedules to advertisers next week at presentations known as the "upfronts."

That assessment does conflict with the opinions of many TV analysts and media buyers though, who predict that the networks will face a tough time negotiating increased ad rates since TV ratings are down industrywide and more and more viewers are using TiVos or other digital video-recorder devices to watch shows on a time delay in order to skip commercials.

Overall though, Joyce said Disney looks positioned to keep posting strong earnings growth in the months ahead. He points out that the company generates strong amounts of cash flow that it can use to buy back stock.

Investors typically like stock buybacks since they reduce the number of shares outstanding, which helps boost earnings per share.

To that end, Disney said in its quarterly report that the company has bought back 96 million shares worth $3.3 billion so far this fiscal year and that the company recently authorized an increase in the number of shares in its stock buyback program to 400 million shares.

Disney is the latest big media firm to report its quarterly results. Last week, Time Warner (Charts, Fortune 500), the parent company of CNNMoney.com, and CBS (Charts, Fortune 500) both posted better-than-expected earnings for the first quarter.

News Corp. (Charts, Fortune 500) and Viacom (Charts, Fortune 500) will report results for the most recent quarter on Wednesday and Thursday.

Analysts quoted in this story do not own shares of the companies mentioned in this piece and their firms have no investment banking ties to the companies.

The reporter of this story owns shares of Time Warner through his company's 401(k) plan.