Walt Disney Co on Wednesday reported a surprisingly strong 39 percent rise in quarterly profit as "Cars" and "The Chronicles of Narnia" helped turn around its underperforming film studio division.
While marketing expenses from "Pirates of the Caribbean: Dead Man's Chest" skimmed off some profits in the quarter, the blockbuster is set to bring a windfall to Disney in the current quarter, having reaped nearly $800 million in box office sales since the movie opened on July 7.
Disney, whose shares rose 3.3 percent in early trading, said its fiscal third quarter net income rose to $1.13 billion, or 53 cents per share, from $811 million or 39 cents per share a year earlier. Total revenue rose 12 percent to $8.6 billion.
Analysts, on average, had expected the second-largest US entertainment company to report a profit excluding items of 44 cents per share and revenue of $8.6 billion, according to Reuters Estimates.
"The numbers speak for themselves - a very clean earnings release. It's hard to find a flaw," said Sanders Morris Harris analyst David Miller, who has a buy rating on Disney and does not own its shares.
Disney Chief Financial Officer Tom Staggs said it recorded a pre-tax benefit of 2 cents a share from the termination of its distribution agreement and cancellation of sequels with Pixar Animation Studios. Disney bought Pixar in May.
Staggs said the studio division was the biggest contributor to Disney's outperformance, with "Cars" contributing about $100 million in revenue and the sale of 18 million "Narnia" DVDs helping boost studio division sales by 17 percent to $1.71 billion.
The division's results were dampened by marketing expenses from "Pirates", which has grossed $790 million at world-wide box offices, Disney Chief Executive Robert Iger told analysts on a conference call.
Disney's studio division helped drive revenue in late 2003 and early 2004 with the success of the first "Pirates" film and Pixar's "Finding Nemo." But the division's revenue has been down the past four quarters, partly due to weak box office results and film costs.
Iger said fourth-quarter TV ad sales so far are flat, while ad sales at Disney's radio group were down "mid-single digits," reflecting a soft marketplace.
The parks and resorts unit also saw revenue rising 11 percent to $2.7 billion due to higher guest spending and higher theme park attendance.
Staggs said fourth-quarter room reservations at Disney's domestic parks are running ahead by a high single-digit percentage rate compared with 2005, but US theme park attendance is expected to be flat.
Theme park attendance in the United States faces a tough comparison to the same period last year, when Disney marketing was in high gear for the 50th anniversary of Disneyland.
Staggs reiterated that high gasoline prices did not appear to be affecting attendance at the company's theme parks. Iger said the company recently agreed to sell its 50 percent interest in US Weekly magazine for "roughly $300 million" in a transaction expected to close this fall.
Disney shares rose 3 percent on Wednesday to $29.83 on the New York Stock Exchange.
They trade at a price-to-estimated 2007 earnings ratio of about 17.65 times, compared to Time Warner Inc's 15.9 times and Viacom Inc's 15 times, according to Reuters Estimates.