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News
Disney forecasts flat 2000
November 4, 1999: 7:23 p.m. ET

Entertainment giant meets 4Q estimates but warns next year won't get better
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NEW YORK (CNNfn) - Walt Disney Co. reported sharply lower operating profits for the fiscal fourth quarter Thursday and warned investors that next year's results are not expected to show much improvement.
     Disney also said it expects fiscal 2000 earnings to be flat on an operating basis as the company continues to struggle with slumping revenues from its home video and consumer products divisions.
     Disney Chairman and Chief Executive Officer Michael Eisner said he will continue to shift the company's focus from asset acquisition and construction to asset management, including unveiling a new home video strategy in the coming weeks, to try and restart the company's growth.
     "Bottom line, this year was obviously a disappointment," Eisner told analysts and investors during the company's first ever conference call following the earnings release. "Duplication and inefficiencies inevitably worked their way into our operations and I am working to make sure they are squeezed back out again."
     Analysts said the earnings warning was likely to severely hurt Disney's (DIS) stock price tomorrow, particularly given it rose steadily all week in anticipation of better-than-expected earnings.
     "I think it's going to be very bad for their stock tomorrow," said Laura Martin, media analyst with Credit Suisse First Boston. "But the fact that they decided to hold a conference call for the first time indicates they are going to be more open with Wall Street in the future, which will help."
    
4Q earnings right in line

     The Burbank, Calif.-based entertainment and media company posted operating earnings before charges of $ 521 million, or 10 cents per share, for the three months ended Sept. 30, matching consensus estimates but falling short of some optimistic wall Street forecasts.
     Factoring in restructuring charges designed to reduce overhead and consolidate operations, as well as the company's November 1998 acquisition of Internet portal Infoseek, Disney actually posted net income of $85 million, or 4 cents per share, compared to $296 million, or 14 cents per share a year earlier.
     Revenue for the quarter fell 6 percent to $5.8 billion. The company reported its earnings after the markets closed.
     For the full fiscal year, Disney recorded operating income before charges of $3.2 billion, or 66 cents per share, a 21 percent decline from last year. Revenues for the year increased 2 percent to $23.4 billion.
     As in prior quarters, Disney's bottom line suffered during the fourth quarter from under-performing results from several key divisions, including its production studios and consumer products operation.
    
Video sales remain Achilles heel

     Revenue from the company's studio entertainment division fell 18 percent to $1.6 billion for the fourth quarter despite improvements in its motion picture distribution, due in large part to the surprise hit 'The Sixth Sense.'
     Studio division sales were hurt by continued weakness in the company's home video operations, where profit margins continued to erode as the company struggled to develop a more efficient release strategy for its top films.
     Disney also cited higher costs associated with its television distribution and production operations, driven by a current load that includes producing four prime-time series.
     To help combat those problems, Eisner promised the company would soon release a new marketing and release strategy centered around the advent of DVD quality videos.
     The company also plans to combine its two television groups into one operation and create a singular international division under the direction of ABC Inc. chairman Robert Iger to streamline costs.
     Elsewhere, the company's trademark theme parks and resorts revenues grew 2 percent for the quarter to $1.6 billion, as operating income from that division climbed 6 percent to $318 million.
     The growth was led by increased spending at the Walt Disney World and Disneyland parks, although Disneyland's results were hurt by Hurricane Floyd, which closed the park for one day and hurt attendance during several others. Disney Cruise Line's operations also saw improved results.
    
Consumer products revenue down

     However, consumer products revenue fell 8 percent to $747 million for the income, while operating income dropped 38 percent to $102 million for the quarter.
     Disney officials blamed the decline on lower worldwide merchandise licensing revenues due to soft sales domestically and in Japan.
     "Given the strength of the market for our products, we became very supply focused . . . and in some ways we got trapped by our own success," said Tom Staggs, Disney's chief financial officer. "The good news is we are in a position of considerable strength to improve our business. But it's going to take some time."
     Eisner promised several changes in that division, including a redesign of Disney stores and more joint marketing efforts between the brick-and-mortar stores and the company's e-commerce efforts online.
     "Clearly we need to bring fresh strategies in order to gain some momentum," he said.
     Growth in company's Internet-related businesses also slowed due to lower direct marketing revenues. For the quarter, revenues fell 18 percent to $47 million, leading to an operating loss of $39 million, unchanged from last year.
    
Dreary stock prospects for Friday

     Analysts said Eisner's frankness during the conference call should help his relationship with Wall Street, which has dragged Disney's stock down in recent months. But few expected it to help Friday.
     Speculation has percolated on Wall Street all week that Disney might surpass analysts' earnings estimate, causing its stock to ascend slowly all week.
     By the time the stock closed up 1-1/2 to 28-3/8 Thursday, it had risen more than 12 percent from its opening price Monday of 25-5/16 Monday.
     After the earnings were released, Disney's stock gave back nearly all those gains in after-hours trading, however, falling back to 26-1/2.
     "The next 12 months are going to be very trying on Disney's bottom line," Martin said.
     "It's impossible to predict the day growth will be back," Eisner said. "We don't even know absolutely for next year, but beyond that I believe we have in place the controls for generating capital, we're hoping to get back.
     "We are a growth company. We are not giving up our goals of 20 percent growth. I see it coming, but it's not coming tomorrow."Back to top

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.