A fun ride in Disney land

Surprising parks results make analysts smile

Disney on Tuesday posted an impressive $1.1 billion in net income in its fiscal second quarter and in doing so defied a weak U.S. economy that was supposed to have discouraged consumers from visiting expensive theme parks.

But in a conference call with analysts who were eager to discuss the parks and resorts division, CEO Robert Iger made them wait while he first gave props to Miley Cyrus and the Jonas Brothers.

The teen idols even trumped "High School Musical," which Iger didn't mention until six minutes into the call.

The CEO, true to form, made no specific predictions, but he also touted the upcoming feature film releases "The Chronicles of Narnia: Prince Caspian" and "Wall-E," as well as the Jonas Brothers' telefilm "Camp Rock," which will air next month on Disney Channel, ABC, ABC Family and Disney.com.

"Our creative pipeline has never been stronger," Iger said. He also suggested purchasing a Wall-E robot toy early because it will be a hot Christmas present, encouraged by the DVD's holiday release.

Analysts, though, already knew that Disney film and TV content would have a stellar showing in the quarter. So it was left for theme parks to provide upside surprise, and Disney didn't disappoint.

Revenue for parks and resorts rose 11% year-over-year to $2.7 billion, while segment operating income jumped 33% to $339 million.

Iger knew that parks and resorts were "top of mind" for analysts, and he told them that the business has been "resilient to date."

Sure, the company benefited internationally from a weak U.S. dollar, but Disney also saw increased attendance at Walt Disney World Resort and increased guest spending there, as well as increased revenue at Disney Vacation Club.

The company also saw favorable trends at Disneyland Resort Paris, and it benefited from the shift of the Easter holiday from the fiscal third quarter last year to the fiscal second quarter this year.

Iger also credited synergies, singling out the "High School Musical" attraction at Hong Kong Disneyland, and he said the company has been successful at persuading consumers to stay at Disney properties when visiting the theme parks as opposed to cheaper third-party lodgings.

Even domestic hotel bookings are ahead for the second half of the year compared with the second half of last year, despite soaring gas prices and persistent speculation of a U.S. economy headed for or already in recession.

Overall, Disney's net income was up 22% on revenue that rose 10% to a hefty $8.7 billion.

Studio entertainment was a standout, with operating income up 61% to $377 million on revenue that rose 18% to $1.8 billion. Domestic home entertainment was a big contributor with such DVDs as "Enchanted," "The Game Plan" and "No Country for Old Men" selling well.

Media networks saw operating income improve 14% to $1.3 billion on revenue that was up 5% to $3.6 billion. ESPN boasted higher affiliate and advertising revenue, while ABC's "Grey's Anatomy" and "Lost" had nice showings internationally.

Consumer products was the laggard, with 10% revenue growth to $551 million but operating income that dropped 14% to $107 million. "Hannah Montana" and "High School Musical" merchandise were standouts, as was the video game "Turok."

"Relative to expectations, it is the theme parks that are performing best," said Steven Birenberg of Northlake Capital Management. "It may be luck, but the timing and success of the theme-park business plan just may allow the parks to miss this economic slowdown, especially if the economy is recovering in 2009."

Disney shares, up 1.3% during the regular session to $33.73, rose another 2.5% in after-hours trading Tuesday.

Edward Jones analyst Robin Diedrich called Disney's results "pretty solid overall" and said its stock and Viacom's are her two top picks in the sector.
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