Disney promises earnings growth next two years, shares rise

By Lisa Richwine and Arunima Banerjee
The logo of the Disney store on the Champs Elysee is seen in Paris, France, March 3, 2016. REUTERS/Jacky Naegelen/File Photo

By Lisa Richwine and Arunima Banerjee

(Reuters) - Walt Disney Co <DIS.N> executives promised earnings growth for the next two years, easing investor concerns over a quarterly drop in ad sales and subscribers at its ESPN sports network, sending the media company's shares up in after-hours trading.

Executives said they expected modest earnings per share growth in fiscal 2017 and "more robust growth" in fiscal 2018 and beyond, as ESPN attracts more online viewers, the new Shanghai theme park lures visitors and the movie studio releases more "Star Wars" installments and other films.

The company's stock rose 2.7 percent to $97.25 after hours.

Disney and media rivals face challenges from "cord cutters" who are dropping TV subscriptions for cheaper and more convenient online services, and the issue is especially important for ESPN, one of Disney's most important brands.

Excluding items, the company earned $1.10 per share in the latest quarter, missing the $1.16 consensus forecast of analysts polled by Thomson Reuters I/B/E/S.

Shares dropped immediately after the report, but revived after executives' comments on growth in a call to analysts.

"We are extremely confident that we'll continue to deliver significant long-term growth," Chief Executive Bob Iger said.

The future of ESPN has been in focus since August 2015 when Iger acknowledged "modest" subscriber losses at the sports network.

On Thursday, Iger said the company had taken "a more bullish position on the future of ESPN's (subscriber) base."

"To some extent, the causes of those losses have abated, notably the migration to smaller packages" that do not include ESPN, Iger said. New digital services "are going to offer ESPN opportunities they haven't had to reach more people," he said.

The strength of ESPN has been a concern on Wall Street, said BTIG analyst Richard Greenfield.

"There is nothing in the release that changes investor views that ESPN is the struggling division," Greenfield said. The company has been investing in share buybacks rather than addressing the problem at ESPN, he added.

Disney expects to repurchase between $7 billion and $8 billion worth of shares in fiscal 2017, Chief Financial Officer Christine McCarthy said.

Asked about the impact of the election of Donald Trump as U.S. president, Iger said it was possible it could speed up work in Washington to lower the corporate tax rate, which Disney has advocated.

For the September quarter, revenue in Disney's cable networks business, which includes ESPN and the youth-focused Disney Channel, fell 6.8 percent to $3.96 billion in the fiscal fourth quarter. Analysts were expecting $4.13 billion, according to FactSet StreetAccount.

Nielsen data estimated that ESPN lost 621,000 subscribers in November - a figure Disney has contested.

Disney's movie business generated revenue of $1.81 billion in the quarter, up 1.57 percent, missing the average FactSet estimate of $1.84 billion. New releases including "Pete's Dragon" could not match last year's success with "Inside Out," "Ant-Man" and "Avengers: Age of Ultron."

Revenue from Disney's theme parks, resorts and cruise line business rose 0.6 percent to $4.39 billion. Four million people visited the new Shanghai Disneyland in the first four months, executives said. Operations should be "very close to breakeven" in fiscal 2017, McCarthy said.

Attendance declined at Disney's parks in Paris, Hong Kong and California during the September quarter, the company said.

Net income attributable to the company, which also owns the ABC TV network, rose to $1.77 billion, or $1.10 per share, in the fiscal fourth quarter ended Oct. 1, from $1.61 billion, or 95 cents per share, a year earlier.

Disney's revenue fell to $13.14 billion from $13.51 billion.

Analysts on average had expected revenue of $13.52 billion, according to Thomson Reuters I/B/E/S.

(Reporting by Anya George Tharakan and Arunima Banerjee in Bengaluru; Editing by Peter Henderson, Anil D'Silva and Bill Rigby)