I got this google hit: Orlando Sentinel - UPDATED: Disney profits fall, company will extend resort discounts on Tourism Central Florida
[B]UPDATED: Disney profits fall, company will extend resort discounts
posted by Jason Garcia on Feb 3, 2009 7:59:24 PM[/B]
The Walt Disney Co.’s profit plunged 32 percent during its most recent quarter, the company reported Tuesday, as theme-park attendance, DVD sales and advertising revenue all slumped in what Chief Executive Officer Bob Iger said was probably “the weakest economy in our lifetime.”
The results for the company’s fiscal-year first quarter fell significantly short of analysts’ expectations, as the effects of a worsening recession spread throughout Burbank, Calif.-based Disney’s sprawling media-and-entertainment empire.
Disney said it earned about $845 million during the three months that ended Dec. 27, compared with $1.3 billion during the same period a year ago. Total revenue fell 8 percent to $9.6 billion.
Excluding one-time gains from the sale of investments in two Latin American pay-television services, Disney earned 41 cents a share during the quarter. Analysts polled by Thomson Reuters had expected, on average, 52 cents a share.
“They’re definitely starting to feel the effects of the slowdown, which they really hadn’t up until now,” said Larry Witt, an analyst with the stock-research firm Morningstar Inc.
All of Disney’s major business segments suffered during the final three months of the calendar year, including its theme-parks division, which accounted for more than a quarter of the company’s overall revenue. The parks-and-resorts unit’s revenue dropped 4 percent to $2.7 billion and its operating profit slumped 24 percent to $382 million.
Disney blamed much of the division’s quarterly slide on weakness at its domestic resorts. Attendance fell about 5 percent from a year earlier both at Walt Disney World and at Disneyland in Anaheim, Calif., and guests’ spending was essentially flat.
Occupancy in Disney’s hotels, which are heavily concentrated in Orlando, fell “mid-single digits” to 85 percent, though hotel guests spent slightly more money per room on average. The division also recorded a $40 million loss from fuel-hedging contracts that soured as oil prices dropped.
Looking forward, Disney said hotel-room reservations for its second and third fiscal quarters are running ahead of last year’s pace, thanks largely to the strength of Disney World’s “buy four nights, get three free” promotion, which became available earlier this year.
As a result, Iger said, Disney is extending the travel period covered by the discount from June 27 until Aug. 15.
With the promotion, Disney is sacrificing lower hotel-room revenue to keep tourists moving through its theme-park turnstiles. Iger said the company is willing to accept the lower profit margins because the parks serve as important brand builders, exposing guests to the movies, television shows, merchandise and other products that Disney also sells.
“The experience that people have when they visit our parks is one that is very good for our brand. There’s also a strong word-of-mouth factor, as well; people who go tell other people what their experience was,” Iger said. “Keeping the pump primed, so to speak, is very, very important for this business, even though it has resulted in some reduction in margins for us.”
Hal Vogel, president of Vogel Capital Management and the author of Entertainment Industry Economics, said it is a smart strategy.
“The brand is important for the long run, and I believe that they’re really doing the right thing,” Vogel said. “But they’re going to have to go through this extended period of time when the margins are not anywhere close to what they used to be.”
Disney, which typically commands premium prices for its products, could risk diluting that premium if consumers come to expect deep discounts. But Morningstar’s Witt said that is unlikely, given the depths of the current recession.
“I mean, if you did it every two or three years, maybe. But the recession that we’re going into is not an every-third-year type of event,” Witt said.
Companywide, Disney’s deepest losses came from its film division. Executives said that was in large part because of a weaker slate of DVD releases compared with last year; films such as WALL-E, The Chronicles of Narnia: Prince Caspian and Tinker Bell failed to match prior-year hits such as Pirates of the Caribbean: At World’s End, Ratatouille and High School Musical 2.
Revenue and operating profit also sank at Disney’s media networks, as advertising revenue fell at both ESPN and ABC.
Faced with a bleak economic outlook, Disney executives vowed to press forward with more cost-cutting initiatives. The company earlier this month offered buyouts to more than 600 executives at its U.S. resorts and announced plans to cut 400 jobs in its television division.
Iger declined to reveal a targeted number for cost savings. But he said Disney will be “very aggressive” in slashing costs.
“Some announcements have already been made…Some you’ll see in the months ahead,” Iger said. “The number is going to be very significant.”