Summary


Business:

Entertainment and media company

Headquarters:

Burbank

CEO:

Michael Eisner

Market Cap:

$38.7 billion Dividend Yield: 0.9%

Total Liabilities:

$21.6 billion P/E Ratio: 117.9

Long-Term Debt:

$15.8 billion

Walt Disney Co. took it on the chin last week, with its stock value plummeting more than 20 percent as investors concluded that the company’s media and theme park earnings would be hurt by the terrorist attacks.

To support its flagging price, Burbank-based Disney announced that it would use a portion of the proceeds from its $1 billion bond offering on Sept. 17 to buy back shares.

Previously, the bond proceeds were to go toward paying for Disney’s $5.3 billion purchase of Fox Family Channel, a deal announced in July.

Chief Financial Officer Tom Staggs confirmed that the company had already bought back shares, but wouldn’t disclose how many.

As of late last week, the buyback had failed to give much of a boost to Disney’s stock. It closed at $18.50 on Sept. 19, down from its pre-attack level of $23.58. Almost all of that loss came on Sept. 17, the first day trading resumed after the attacks.

Downgrading stock

“The market is fixating on these events,” Staggs said. “But perhaps investors are overstating the long-term impact and not understanding the resilience of the American economy. The bond offering was really our way of expressing our confidence, first and foremost, in the U.S. capital markets.”

Nevertheless, Scott Davis, an analyst at First Union Securities, last week downgraded Disney’s stock from a “strong buy” to a “buy” because “it just made sense.”

“Instead of the theme parks growing by double-digits in operating income, nobody knows the number of the impact now. But that number is likely to be down,” he said.

Disney’s plight is made worse by the fact that its theme park business relies heavily on visitors from other states or countries.

Consumers’ reticence to travel and spend following the terrorist attacks will reduce Disney’s theme park unit revenues for the third quarter ended Sept. 30 by an estimated $10 million to $15 million, said Paul Kim, senior media analyst at New York-based Kaufman Brothers LP.

Even before the Sept. 11 attacks, Disney’s theme parks had sluggish attendance as the slowing economy kept many travelers at home. To spur demand, Disney has been offering discounts on tickets to the parks and other promotional deals.

But no promotional campaign is likely to sway many travelers now. “(The terrorist attacks) will have an impact on the quarter. No question,” Staggs said.

All media companies hit

Disney’s media-related hit is resulting from lost ad revenue at the company’s ABC network unit, which along with all the other networks aired nonstop news coverage of the attacks.

Other network companies suffered similar downturns in their stock prices last week. Rival AOL Time Warner Inc., which owns Cable News Network, saw its stock value drop more than 10 percent from its pre-attack level, closing at $30.95 Sept. 19. Viacom Inc., which owns CBS, slid 17.2 percent, closing at $31.40. And News Corp., which owns Fox Television Network, lost 19.8 percent, closing at $24.65.

The drops came as estimates emerged of the extent of ad revenue losses. Some analysts placed the total impact to be as much as $100 million a day collectively among the TV networks. And those losses could continue, at a reduced level, for some time to come, analysts said.

Kim said Disney’s broadcasting losses were about $40 million to $55 million during the first week of news coverage. Disney executives declined to specify the amount of revenue lost, but they characterized Kim’s estimate as much too high.

Disney likely fared better than its network rivals, which generate a higher percentage of their total revenue from broadcasting, said Davis. About 30 percent of Disney’s total revenue comes from its broadcasting business.

Like its competitors, Disney spends roughly $400 million to $500 million a year on news. This year, that budget may be increased by an additional 10 percent, Davis estimated.

Staggs said he plans to take into account additional news programming dollars in his budget preparations. He wouldn’t say how much more additional news coverage would cost Disney.