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Disney banks on disaster
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March 4, 1998: 4:43 p.m. ET
'Armageddon' could help a magic kingdom running low on star dust
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NEW YORK (CNNfn) - Armageddon is coming to the Magic Kingdom -- and not a moment too soon for some bedraggled Walt Disney Co. officials who could probably use a little fire-and-brimstone uplift these days.
Shares of Disney tumbled sharply Wednesday after two influential Wall Street analysts cut their estimates for the company, citing several less than stellar films and continued problems at ABC.
Disney shares (DIS) skidded 3-1/8, or 2.84 percent, to 106-7/8 on the New York Stock Exchange Wednesday, putting pressure on the overall blue chip index. The Dow industrials fell 45 points to 8,539, ending a five-day winning streak.
Despite the decline, Disney officials were upbeat about the future.
"It will be one of the big hits of the summer," enthused Disney spokesman John Dreyer. He was referring, of course, to "Armageddon," the would-be Disney blockbuster slated for a July 4 premiere, in which Bruce Willis will attempt to save the planet from a head-on rendezvous with an asteroid the size of Texas.
Dreyer's remarks Wednesday were intended, in part, to allay concerns by some Wall Street naysayers that Disney shares are headed for a collision of their own.
According to published reports, David Londoner of Schroder & Co. lowered his estimate from 55 cents to 51 cents a share for the company's fiscal second quarter. Londoner also trimmed his estimate for the year to $3.13 a share from $3.20.
Londoner couldn't be reached for comment Wednesday. But according to reports, he based his revisions on a recent run of "singularly unsuccessful" Disney movies, including "Kundun," about the life of Tibet's Dalai Lama, "Deep Rising," and "Krippendorf's Tribe."
Jill Krutick and Spencer Wang, analysts at Salomon Smith Barney, similarly downsized their earning estimates in light of what they termed "a recent spate of duds at the box office." The analysts shaved 4 cents from their fiscal second-quarter estimates, from 54 to 50 cents, and an additional 4 cents from the company's second-half outlook. They also pared their estimates for the year from $3.25 to $3.17.
They attributed their revisions in part to poor ratings for the ABC network, acquired by Disney in early 1996, which "have continued to trend downward 5 to 7 percent in the second quarter."
However, both analysts sought to downplay the gravity of the adjustments, noting that Creative Content, Disney's film division, and the theme parks would continue to drive growth along in the second half.
"Overall," they wrote in a statement, "we believe that the concerns discussed today are more quarter specific than a change in the overall tone of business at Disney."
Londoner, for his part, was careful to stress that he believed the market may have overreacted to his own reaction to the cinematic flops. Dreyer was equally emphatic. "They just haven't performed," he said of the films, noting that "that's just what happens in the movie business."
Such sentiments aside, one might be forgiven these days for musing aloud about whether it is, indeed, the Wonderful World of Walt Disney. A string of recent setbacks -- from El Nino-warped weather patterns to canceled cruises to stockholder unrest -- has taken the stardust out of the Disney magic, some analysts say.
All aboard Disney Magic
On the first count, Disney's theme parks in Anaheim, Calif., and Orlando, Fla., have --so far -- escaped the elemental fury of El Nino's mudslides, tornadoes and torrential rains. Nonetheless, analysts believe attendance could dwindle at the parks, which generate a hefty share of Disney's total sales revenue of nearly $22.5 billion.
Bad weather has buffeted Disney in other ways as well. In mid-February, Disney postponed the maiden voyage of its new cruise ship, Disney Magic, for the second time after poor weather and supply shortages backed up construction at Fincantieri, the Italian shipyard commissioned to build the ship.
Today, after nearly foundering, plans for the voyage are going full speed ahead, with a cruise date set for July 30. "Obviously we would like to be sailing now," Dreyer said, "but we would rather have the ship 110 percent right, and we will have a ship that is 110 percent ready."
Then there was the stockholder uprising, or what may be dubbed the Mickey Mouse insurgency. At a recent meeting, about 35 percent of voting shareholders supported a resolution exhorting the company to revamp its board with directors with fewer ties to the company.
The protest, initiated by a group of shareholders from the College Retirement Equities Fund, which holds about 6.9 million of Disney's 688 million outstanding shares, was the second of its kind in two years. Though the proposal went down to defeat, it likely will be resurrected next year.
New projects in the offing
Last year, Disney stock rose 50 percent, peaking at a 52-week high of 115-3/4. Despite Wednesday's loss, the stock was still up 5 percent overall since Jan. 1. In the fiscal second quarter of 1997, Disney earned 46 cents a share, and $2.58 for the year -- well below the analysts' revised estimate for 1998.
In the coming months, Disney plans to launch Animal Kingdom, a theme park based on animals in Florida, on April 22. In California, the company is putting the finishing promotional touches on a new and futuristically improved Tomorrowland to replace the old one, which has been shut for a year.
Krutick and Wang raised their operating income estimates for Disney's theme parks to $262 million, an 11 percent hike over current levels, despite inclement weather.
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The Walt Disney Co.
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