Disney fires back after warning from analyst over prospects for 2008

[crazy4wdw]

Disney fires back after warning from analyst over prospects for 2008

The company addresses concerns about the financial prospects of theme parks and resorts for the year.

Scott Powers | Sentinel Staff Writer
January 30, 2008

A stock analyst's concerns about Walt Disney Co.'s theme-park prospects in 2008 and a "sell" recommendation for Disney stock prompted the company's chief financial officer to respond Tuesday, defending the performance of the company's parks-and-resorts business.

"Thus far, we're pleased with the pace of business in our parks, especially considering the fact that we had record attendance at our domestic parks last year," said Thomas Staggs, senior executive vice president and CFO..

Disney stock closed at $28.69 a share Tuesday, down 68 cents a share for the day.

The stock had slipped more than that earlier in the day after analyst Jason B. Bazinet of Citi Investment Research, a division of Citigroup Global Markets, issued a report expressing concern about how the company's theme parks and resorts would do in 2008. Bazinet downgraded his recommendation of Disney stock from "hold" to "sell" and cut his target price from $36 to $26 a share.

Bazinet cited three trends he perceived: the probability that hotel-room sales were down in the first quarter of Disney's fiscal 2008 at Walt Disney World and other East Coast resorts; that hotel-room spot pricing had fallen at both Disney World and Disneyland; and that this could mean that Disney anticipates lower demand in 2008.

Disney officials would not comment in detail on Bazinet's findings, noting that much of the response will be detailed in the company's first-quarter earnings report, due out next Tuesday, for the three months that ended Dec. 31. However, Staggs took the unusual approach of responding enough to address the division's general performance and to raise questions about Bazinet's observations about the company's hotel room rates and bookings.

"Currently, our room reservations at our domestic resorts for the remainder of our fiscal year are modestly ahead of where they were this time last year," Staggs said. "And as for the pricing of our rooms at our domestic resorts, it's tracking slightly ahead of last year."

A Citigroup spokeswoman said Bazinet was traveling late Tuesday and would not be available to respond to Staggs' statement.

In his report to clients, Bazinet expressed confidence in Disney's business strategy and execution but said he had concerns about the "sustainability of Disney's robust results, particularly within the parks division," during tougher economic times.

"To be blunt, the concerns we had about parks in 2007 never materialized. Over the last 18 months, Disney has continued to perform extraordinarily well," Bazinet reported. "But now, as we enter 2008, we are getting increasingly concerned that Disney's strategy and strong execution may simply get overshadowed by macroeconomic forces."

He cited stubbornly high energy costs and the faltering housing markets, among other things, adding: "We think it's only natural for consumer spending to slow."

Bazinet's report explained that the observations about Disney's hotel business were based on Citi Investment Research's ongoing spot survey of the company's hotel rates and indications of whether its hotels are booked full. The research indicated both trends were falling.

Scott Powers can be reached at spowers@orlandosentinel.com or 407-420-5441.

 

[dismorgh]

You know, if it weren't for all the silly analysts continually predicting doom & gloom, we might never have any economic problems. Maybe they should just go away, and let the economy work like it should. Of course they couldn't charge ridiculous fees for making predictions that are self-feeding. The common person reads that things are bad (even if they really aren't) so adjusts spending, thus making the prediction come true, even though it might NOT have if the analyst would've just shut up!

 

[CanadianGuy]

Way I read this report is..

"Yeah, ok, we were wrong about last year but we're feeling better that our doom and gloom prediction is right this time."

Could be right.. could be wrong.. but it would seem their '1st quarter' softness expectation is wrong.

And what of all these 'checks' that will be mailed out. How many of those will end up in Disney's bank account?

Knox

 

[TheRustyScupper]

1) The analyst could be right.
2) The analyst could be wrong.
3) It does make sense that sustainability of record attendance is tough.
4) But, only Lamont Cranston really knows.
5) And he isn't talking . . . yet.

 

[CanadianGuy]

6) Only he REALLY knows..

 

[paulh]

this might mean free dinning would cover a longer time frame
Paulh

 

[mwehttam]

this might mean free dinning would cover a longer time frame
Paulh

Pox on you for the thought. The sooner that plan is done away with the better.

 

[episode]

The analyst who wrote the article clearly knows nothing about WDW.

He assumes that simply because the hotel rooms are cheaper than others on the east coast, Disney is underpricing. But he isn't taking into account the extra income that Disney gets from having guests stay on property, which is something that these other hotels that he is comparing to cannot count on.

Yes, the rooms are generally cheaper at WDW than say on South Beach. But the SB hotels don't get basically all of their guests 'food and fun' business for the duration of their stay, like WDW does.

In other words, ignore the article, the analyst is clueless.

 

[EUROPACL]

In other words, ignore the article, the analyst is clueless.

Wow 14 post and you're taking on Citi group.

 

[DancingBear]

episode, he wasn't comparing Disney rates to South Beach rates. He was comparing Disney rates to Disney rates:

Also, Bazinet thinks Disney lowered rates at its U.S. hotels at the last minute in the fourth quarter to fill vacant rooms because of poor demand. Between January and last October, Bazinet said it was typically less expensive to book a room a week ahead of travel than it was to book three months in advance.

http://www.forbes.com/feeds/ap/2008/01/29/ap4585756.html

 

[DancingBear]

The Motley Fool disagrees:

http://www.fool.com/investing/general/2008/01/29/dont-sell-disney.aspx

 

[I'mNoPrince]

Yes that means less crowds . He said so ,so that means it's true. Everyone sell so it will scare everyone away ..

Oh and I guess there goes DDs $.25 check I guess from her 1 share

 

[Peter Pirate 2]

What is free dinning?

 

[episode]

Wow 14 post and you're taking on Citi group.

At least I'm not deluded enough to think that Wild Hogs made more profit than AWE.

Get over yourself, no one cares how big your e-peen is.

And I was commenting on the analyst, not Citi. If I wanted to comment on Citi, there would be quite a different argument.

episode, he wasn't comparing Disney rates to South Beach rates. He was comparing Disney rates to Disney rates:

The point remains. They can slash the empty rooms at the last minute because they get more income then just the room. The analyst doesn't seem to realize that. He based the whole argument on room prices.

 

[Another Voice]

This is more than just $3.00 a gallon gas and a mild recession.

It took seven years for Disney to recover from its last downturn (from early spring 2000) and that was during a time of huge consumer spending. Where did people get all their expendable cash? Looking at the statistics, most consumers ran up their personal debt throughout the last decade and/or taking money out of their homes.

Both of those bubbles have now burst.

There no more instant cash from re-financing your mortgage to a lower interest rate. And it’s going to be a while before people are going to get easy “home equity” loans again as house price fall or remain fairly flat.

How about all those millions of home owners with sub prime loans that are suddenly facing big increases in interest? Are they going to still go to WDW? And if it’s a choice between paying on a second mortgage or making paying off the loan for a DVC “membership” – where are people send the check?

With the credit markets already tight, how much more are people going to put on the VISA and MasterCards? Default rates are already soaring and you know that means credit limits are going to be cut and interest rates are going to fall. Somehow a WDW trip looks a lot less appealing when that you’re paying 18% interest on a maxed out card.

If people were slow to respond to Disney when they had a lot of available cash, what’s going to happen when there isn’t any left? Trading off three bucks for gas vs. savings for a vacation is easy – but how do you fit a $5,000 vacation when your mortgage payment is going up by $500 a month and you have $1.48 left on your MasterCard?

Disney has drastically overpriced themselves. They’ve paid the price for that all for the last several years (free food does not come cheap) and that was during great economic times. Now that things are softening, a lot of people that put up with Disney’s bad value are simply going to walk away. Sure, the “die hard” fans will still go, but that accounts for such a tiny percentage of Disney’s attendance that all the frantic pin trading and third helpings of Dole Whips are going to mean a thing.

Disney needs to run the parks for as a business, and not as a corporate ATM to fund disaster elsewhere in the company.

 

[Timon-n-Pumbaa Fan]

Pox on you for the thought. The sooner that plan is done away with the better.

AMEN!

 

[EUROPACL]

At least I'm not deluded enough to think that Wild Hogs made more profit than AWE.

Get over yourself, no one cares how big your e-peen is.

And I was commenting on the analyst, not Citi. If I wanted to comment on Citi, there would be quite a different argument.

e-peen....bwhaahahahah. Ok now I see... tell your dad to start posting. BTW its not a delusion its called math and simple logic which seems to escape you. Don't worry they will cover that next year when you get to your first finance class.

Since we know who Jason B. Bazinet is and can check his credentials maybe you would post yours so we'll know who to go with on this issue.

 

[crazy4wdw]

More Info:

Citigroup downgraded shares of Disney (NYSE: DIS) to Sell from Hold after their databases indicated a slowdown in Parks is likely. They believe the slowdown in Parks will be coupled with a broader ad slowdown and lowered their target to $26 from $36.

 

[DancingBear]

The point remains. They can slash the empty rooms at the last minute because they get more income then just the room. The analyst doesn't seem to realize that. He based the whole argument on room prices.

No, he didn't base his "whole argument" on room prices, he based it primarily on the state of the economy. But in any event, assuming Disney's WDW's revenue is based on:

A + B = C

Where A is revenue from room rates and B is revenue from food sales and such, isn't C less if A is less?

 

[CanadianGuy]

Disney's revenue is also based on ad sales for properties like ABC, ESPN and other cable networks etc.. And I'd be a whole more worried about the softness in that revenue than the theme park fundamentals.

And Disney revenue is also based on theatricals.

And Disney revenue comes from the resorts and parks .. yes. Saying it's just parks, tickets and so on.. it's extremely simplistic.

Not only that nobody seems to be noting that he was wrong last year on this point (or at least his Citigroup people were) ...

He may or may not be wrong this year... Personally, I give the edge to Motley Fool on this one... especially given their international view... and this bit at the end..

I'm not suggesting that one should back up the truck to the Mouse at the moment, but it certainly seems like a lousy time to bail on the family-entertainment giant. If the valuation appears reasonable, remind yourself that Disney has actually beaten analyst estimates in each of the past 11 quarters.

Maybe Bazinet has seen the cracks before anyone else has. Maybe next week's fiscal first-quarter report will prove Disney mortal. Such things would worry me if Disney were trading at some stratospheric multiple, but it's not. With the recent share weakness already discounting a lackluster report, I would argue that the bears need to worry more about the upside than the bulls do with the downside.

Knox