Disney stock rebounds

Leah Zanolla | Posted: Nov 9, 2008 | Updated: Oct 19, 2014 - 9:25:27 AM

The Walt Disney Company's stock rebounded after the initial downturn which followed the release of the company's earnings statement on Thursday.

The Burbank, California company reported earnings of $760 million, or 40 cents a share, for the fourth quarter which ended on September 27, 2008. This was in contrast to the 2007 fourth quarter earnings of $877 million, or 44 cents a share.

While Disney reported a 6% rise in revenue to $9.45 billion based on its theme parks and cable networks, it was offset by a $91 million bad-debt charge on a payment it was to receive from now bankrupt Lehman Brothers. Disney's finances were further hurt by increased operating expenses as well as weakened sales at the box office. The company indicated that without the Lehman debt and other special items, its earnings would have been 43 cents a share. Prior to the release of the earnings statement, analysts had expected a fourth quarter profit of 49 cents a share.

Friday saw an 8% drop in the company's stock value when the market opened. Disney's stock then gained 5% and closed up by 2.4% at $23.36.

Tuna Amobi, Standard and Poors analyst changed his recommendation from "strong buy" to hold. He advised his clients "In a sobering near-term outlook, Disney sees further sharp deterioration in park bookings and ABC/ESPN ads, while halting share buybacks."

While some analysts share Amobi's concerns, others feel that Disney is prepared to face the challenges of today's economy. Deutsche Bank's Doug Mitchelson stated "Unlike some peers, Disney's challenges are predominately cyclical, not secular. Currency risk is fully hedged. Its brands remain strong and growing, and barriers to entry in its businesses are very high."

Disney's CEO Bob Iger commented that the economy has resulted in consumer confidence being at its lowest point in three decades and that spending is expected to "almost certainly" be less during 2009 as well as for the 2008 holiday season. Iger stated that consumers are being "very careful about what they spend." He also indicated that theme park business and resort bookings "have fallen off considerably."

Citing Disney's response to the turmoil of 2001, Iger stated "This is a team that manages through good times and really tough times, particularly in the 2001 period. So not only have we gone through this before, we've gotten better at it, particularly in the parks and resorts."

While Disney cable division has been strong, its ABC network had an operating loss of $150 million due to a decrease in advertising revenue, costs of election coverage and a delay in determining which new shows will be added to its lineup.

Disney's theme parks saw revenue up by 7% to $3 billion during the last quarter, but this was accompanied by a 4% decrease in domestic operations. This latter figure would have been lower had it not been for good results at its Disneyland Resort Paris.