Slow film sales may hurt Disney earns
Analysts: Lower profits ahead due to 'Alamo,' 'Range'
By Russ Britt, CBS.MarketWatch.com
Last Update: 6:30 PM ET April 12, 2004
LOS ANGELES (CBS.MW) -- For Disney's box office, what a difference a year has made.
Last year, Wall Street was singing the praises of the company's film division after $300 million-plus performances from two movies, "Finding Nemo" and "Pirates of the Caribbean," as well as respectable performances from other entries.
That was then. This is now.
Wall Street analysts were concerned Monday that two big-budget Disney (DIS: news, chart, profile) movies, "Alamo" and "Home on the Range," would force the embattled entertainment giant to take write-offs and ultimately report lower earnings.
"Alamo," an epic starring Billy Bob Thornton, finished in a tie for third place in domestic receipts over the weekend, behind Mel Gibson's hit "The Passion of the Christ" and Sony's (SNE: news, chart, profile) "Hellboy." Fox's (NWS: news, chart, profile) "Johnson Family Vacation" had roughly the same receipts as "Alamo."
Costing roughly $100 million to produce, "Alamo" needed a big first weekend to get it on track for profitability but made a relatively paltry $9.2 million, according to preliminary estimates.
And "Home On The Range," ended up in sixth place in its second weekend with $8.2 million. That animated feature cost an estimated $110 million to make but has returned $27.5 million in domestic receipts thus far.
Late Monday, Disney Chief Financial Officer Thomas Staggs issued a reply.
"Given the performance we're seeing in our businesses, we remain confident in our ability to deliver attractive growth in our earnings," Staggs said in a press release. Staggs went on to say the company expects an operating earnings increase of more than 40 percent this fiscal year, which ends Sept. 30.
The disappointing showings from the two films prompted Goldman Sachs and Salomon Smith Barney to issue notes Monday. Goldman Sachs analyst Anthony Noto said "Alamo" needed to make $20 million in its first weekend to avoid a Disney write-down.
"More broadly, 'Alamo' is another historical epic genre film that has not ignited viewer enthusiasm," Noto wrote. "This trend signals a potential risk of wearout for epic movies and consequently, we look for more cautious budgeting in films that carry the epic story line as a platform of familiarity strategy."
Noto said, however, that "Range" could ultimately wind up profitable, as the film could return $125 million in worldwide receipts and as much as $200 million in home video and other ancillary revenue.
Goldman Sachs says it is advising Disney on the company's proposed acquisition by cable giant Comcast (CMCSA: news, chart, profile) (CMCSK: news, chart, profile)
Jill Krutick at Salomon Smith Barney, meanwhile, lowered her expectations for Disney's bottom line.
Krutick said Disney's profits could be impacted by 3 cents a share due to 'Alamo's' poor showing. She added that "Range" may end up with a "minor" write-off.
Krutick said studio operating profits could drop by as much as $100 million, leaving Disney with overall operating profits of $1.09 billion, down from $1.19 billion. That could lower earnings per share to 97 cents, she said.
Unchanged, however, were Krutick's 2005 estimate of $1.13 a share and her "buy" rating on the stock.
Disney Chief Executive Michael Eisner desperately needs the company's earnings to jump this year when compared with last year's. Eisner lost his title as chairman due to a 43.4 percent shareholder vote last month to remove him from the company's board.
The company has been promising earnings increases of more than 30 percent for fiscal year 2004. A write-off on these films shouldn't prevent that from happening, but could remove its studio operations as a significant positive for Disney going forward.
Disney shares closed down 55 cents, or 2.1 percent, to $25.70.
Russ Britt is the Los Angeles Bureau Chief for CBS.MarketWatch.com.
