Walt Disney Co.’s first quarter profit fell 32%, driven down by weaker performance at its broadcast and cable holdings as the economy has slowed.
“We faced a challenging first quarter with many of our businesses impacted to various degrees by the economic downturn,” said Robert A. Iger, Disney’s president and CEO.
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The company posted net income of $845 million, or 45 cents a share, compared to $1.25 billion, or 63 cents a share, a year ago. Earning for the current quarter included a gain from the sale of its stake in two pay television services in Latin America. Sales fell 8% to $9.6 million.
While the economy had an impact on the company, Mr. Iger, speaking on an earnings conference call with analaysts, added that other changes in the industry were at work. “When the economy rebounds, which it inevitably will, the normal that we see isn’t necessarily going to look like the normal that we were used to,” he said.
Mr. Iger said Disney’s broadcast side would be “focused more than ever on creating great entertainment that we own and can distribute across multiple platforms,” pointing to the recently announced consolidation of ABC Entertainment and the ABC Studios as a more efficient way to create content.
He added that on the local station front, the company will not cut costs in a way that cripples local news operations.
The stations’ local news brands “are the single most valuable assets of these stations and where we believe additional reductions would have a long-term negative impact,” he said. “Our position as a market leader in local news provides us an opportunity to increase the value of these assets, even as competitors cut back.”
Operating income at Disney’s Media Networks division declined 29% to $655 million as sales in that unit fell 5% to $3.9 billion.
Operating income for Disney’s broadcast unit, including local stations, was down 60% to $138 million on a 14% revenue slide. Sales there came in at $1.5 billion.
Disney’s cable networks, including ESPN, brought in $517 million in operating profit, a 12% decline. Revenue at the unit rose 2% to $2.5 billion.
The company said broadcast’s decline came from lower advertising revenue at the ABC television network and at the owned stations.
There was also a bad debt charge of $60 million connected with the bankruptcy of Tribune Co., which is a customer of Disney’s syndication unit.
The company said the decrease in ad revenue at the network was primarily due to lower prime-time ratings.
The company said the declines at the cable networks reflected lower ad revenues and higher programming costs at ESPN, as well as a decrease in DVD sales at Disney Channel. A year ago, Disney Channel had a bonanza with “High School Musical 2” DVDs.
“We continue to see weakness in the ad market,” said Disney CFO Thomas Staggs. “Ad pacings at our TV stations are significantly behind last year, in part due to the lack of political spending in this year’s fiscal Q2.”
He said advertising prices on the scatter market at the network are running slightly above up-front pricing but the pace of sales for the second quarter is still below this time last year.
“At ESPN pacings thus far in Q2 versus the prior year are slightly behind the comparison we saw in Q1. Pacings at ABC Family are up so far in Q2,” Mr. Staggs said.
Last week Disney’s Disney-ABC Television Group announced that it was eliminating about 400 jobs, including not filling about 200 vacant positions.
Mr. Iger said cost cutting involved more than laying off employees.
“Clearly there have been and there will be reduction of personnel. The cost reductions that I speak of, though, go well beyond that and encompass a number of other things, like reducing the cost of distributions, production, marketing, etc. And so it is an across the board process that does not just involve eliminating jobs,” he said.
Analyst Spencer Wang of Credit Suisse, said that while Disney’s earnings were below estimates, one-time items were responsible for the shortfall.
“In general, we are encouraged by signs that Disney is weathering the cyclical storm,” Mr. Wang said.
(Editor: Baumann. Updated 9:50 p.m. to add conference call information, analyst comment.)