Disney 4Q profit rises but pay TV unit underwhelms

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The Walt Disney Co.’s earnings rose 12 percent in the company’s fiscal fourth quarter, beating analysts’ forecasts on the surprising strength of its new video game “Disney Infinity” and upbeat movie studio results.

But a worse-than-expected performance from Disney’s stalwart pay TV unit housing its ESPN network led to a stock drop in after-hours trading.

Analyst Alan Gould of Evercore Partners said the market remained focused on the reliable profits of Disney's pay TV division, rather than the hit-and-miss results from the studio or its games division.

Net income in the three months that ended September 28 came to $1.39bn, or 77 cents per share. That’s up from $1.24bn, or 68 cents per share, in the same months a year ago. Revenue grew 7 percent to $11.57bn.

Analysts polled by FactSet had expected earnings of 76 cents per share on revenue of $11.4bn.

Revenue at Disney’s pay TV networks, including ESPN, rose a tepid 1 percent to $3.57bn, largely because a big chunk of fees from distributors came in the previous quarter due to meeting its audience obligations early. The unit’s profit fell 7 percent.

Chief Financial Officer Jay Rasulo said, excluding that fee-timing issue, revenue and profits would have been up 6 percent.

While ESPN’s growth was even better than that, heavy investment in programming at the part-owned A&E Networks and on a free-to-air channel in Germany “is depressing the average,” he said.

Parks and resorts revenue grew 8 percent to $3.72bn as visitors spent more in the U.S.

Interactive revenue more than doubled to $396m, as the division squeaked out a profit of $16m, its second quarter in the black since results began being broken out for the unit in late 2008.

Disney said it sold more than 1 million “Infinity” starter packs globally and has high hopes for the holiday season.

The movie studio showed resilience despite taking a write-down on “"The Lone Ranger” that the company previously said would amount to $160m to $190m. Studio revenue rose 7 percent to $1.51bn thanks to strong movie ticket sales for “Monsters University.”

Disney also announced developments for two major subsidiaries Thursday: Marvel and Lucasfilm. The company set the release date for “Star Wars: Episode VII” at December 18, 2015. It also said it would produce four original TV series for Netflix based on characters including “Daredevil” that would begin playing in 2015.

Disney merchandise was a hot seller, with consumer products revenue growing 14 percent to $1bn, while broadcasting revenue from its Disney’s ABC network rose 2 percent to $1.37bn.

Shares of the Burbank-based company dropped $1.16, or 1.7 percent, to $65.99 in after-hours trading Thursday. The stock had closed down 2.7 percent to $67.15 Thursday on a weak day for broader markets.

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