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Disney Parks Flourish Despite Economic Drought
Peter Sanders - Barron's News ArticleWalt Disney Co. bucked the gloomy economic climate in its fiscal second quarter, as net income rose 22% from a year ago on surprisingly strong business at its theme parks and resorts and its TV networks.
Investors were watching Walt Disney's theme parks and resorts closely for any sign of weakness amid rising fuel and food costs and the impact of the housing crisis -- all factors that could cut into families' visits to Disney parks. But revenue at the Burbank, Calif., entertainment conglomerate's theme-park unit for the quarter ended March 29 increased 11% to $2.7 billion from the year-earlier
"The parks had an extraordinary quarter when you consider the economic environment," Chief Executive Robert Iger said in an interview. Guest spending per room at both the Walt Disney World Resort in Orlando, Fla., and the Disneyland Resort in Anaheim, Calif., grew compared with last year; in Orlando, for example, the increase was 7%.
Mr. Iger declined to forecast the impact of the economy on Disney going forward, but said bookings for the rest of the year are "slightly ahead of where they were this time last year." He added: "You'll just have to infer that what worked in the second quarter could continue to work for us for a long time"
On a conference call, Mr. Iger said one factor helping the company during this downturn -- as opposed to previous economic slides, like one in the early 1990s that hurt Disney's park attendance -- is that "75% of our hotel product is 'moderately priced' or 'value priced'. In 1991, over 55% of the rooms were considered 'premium priced'. Our portfolio of rooms is more accessible." He added: "We are much better positioned in a difficult economic cycle than we were in the past, and certainly more than in 1991."
Mr. Iger said the Disney parks are also reaping unexpected benefits from factors such as the weak U.S. dollar. The number of international visitors to Disney's U.S. parks was up 25% from a year ago, thanks to the currency advantage for foreign travelers. On the flip side, he said, U.S. residents looking to avoid the high cost of travelling abroad are visiting the domestic parks instead. The Disney parks are benefited from the fact that the Easter holiday this year fell during the company's second quarter, not the third.
Disney's media networks unit, led by sports cable channel ESPN, posted strong results, but revenue and ratings declined at its broadcast networks, largely as a result fo the 100-day screenwriters' strike that ended in mid-February. Revenue at the media networks unit gained 5% to $3.6 billion from a year earlier; although broadcast revenue slipped 2% to $1.5 billion from $1.52 billion, operating income at the broadcast networks grew 17% to $223 million
At its movie studio, Disney's offerings performed well. DVD releases including "Game Plan" and Oscar winner "No Country for Old Men" helped drive revenue up 18% to $1.8 billion. The company notched up theatrical successes with "National Treasure 2: Book of Secrets" and a Hannah Montana concert film.