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Mars Needs Moms Hurts Disney's Q2 Earnings

The Walt Disney Company today reported earnings for its second fiscal quarter and six months ended April 2, 2011.

Press Release from The Walt Disney Company

BURBANK, Calif. – The Walt Disney Company today reported earnings for its second fiscal quarter and six months ended April 2, 2011. Diluted earnings per share (EPS) for the second quarter increased 2% to $0.49, compared to $0.48 in the prior-year quarter. Diluted EPS for the six-months ended April 2, 2011 was $1.16 compared to $0.93 in the prior-year period.

“We are pleased with the underlying quality of our second quarter earnings,” said Robert A. Iger, President and CEO of The Walt Disney Company. “There is great creative momentum throughout the company which gives us continued confidence in our ability to grow our businesses.”

Media NetworksMedia Networks revenues for the quarter increased 12% to $4.3 billion and segment operating income increased 17% to $1.5 billion.

Cable NetworksOperating income at Cable Networks increased $174 million to $1.4 billion for the quarter due to growth at ESPN, ABC Family and the Disney Channels, partially offset by lower equity income. The increase at ESPN reflected higher advertising and affiliate revenue, partially offset by higher programming costs. Advertising revenue growth was primarily due to higher rates and sold inventory while higher affiliate revenue was due to contractual rate increases. Higher programming and production costs were driven by the addition of college football Bowl Championship Series games. Higher operating income at ABC Family was driven by lower programming and marketing costs due to the timing of airing of original programming, while increased operating income at the Disney Channels was due to increased affiliate revenue, partially offset by higher programming costs. Affiliate revenue growth at the Disney Channels reflected contractual rate increases domestically and subscriber growth internationally. Decreased equity income reflected the impact of programming costs for the Cricket World Cup at our ESPN Star Sports joint venture.

BroadcastingOperating income at Broadcasting increased $44 million to $167 million driven by higher advertising revenue at the ABC Television Network and at the owned television stations, higher affiliate fees, increased sales of ABC Studios productions and lower programming and production costs at the ABC Television Network. Higher advertising revenues at the ABC Television Network were driven by increases in primetime and news, partially offset by a decrease in sports due to the shift of the BCS National Championship game to ESPN. Increased primetime and news advertising revenues reflected higher rates, partially offset by lower ratings. Higher sales of ABC Studios productions were driven by Criminal Minds, Army Wives and Castle, partially offset by the absence of Lost. Decreased programming and production costs reflected the benefit of cost saving initiatives at news and the shift of the BCS National Championship game to ESPN, partially offset by a higher cost mix of programming in primetime.

These increases were partially offset by the absence of recoveries of previously reserved receivables which occurred in the prior-year quarter and timing of marketing costs.

Parks and ResortsParks and Resorts revenues for the quarter increased 7% to $2.6 billion and segment operating income decreased 3% to $145 million. Results for the quarter were driven by decreases at Disney Cruise Line and Tokyo Disney Resort, partially offset by increases at our domestic and consolidated international parks and resorts. The decrease at Tokyo Disney Resort was driven by the March 2011 earthquake and tsunami in Japan which resulted in a temporary suspension of operations at the resort. Results at both our domestic and international parks and resorts reflected an unfavorable impact due a shift in the timing of the Easter holiday relative to our fiscal periods. As a result, the current quarter did not include any of the two week Easter holiday while the prior-year quarter included one week of the Easter holiday.

Lower operating income at Disney Cruise Line was primarily due to increased operating and promotional costs driven by the launch of our new cruise ship, the Disney Dream, in January 2011 and higher fuel and other operating costs for the existing fleet, partially offset by higher passenger cruise days from the Disney Dream.

Increased operating income at our domestic parks and resorts was driven by higher guest spending and hotel occupancy, partially offset by increased costs. Higher guest spending reflected increased average ticket prices and daily hotel room rates. Increased costs reflected labor cost inflation, higher pension and healthcare costs and expansion costs for Disney California Adventure at Disneyland Resort.

Improved results at the consolidated international parks and resorts reflected higher attendance and hotel occupancy at Disneyland Paris and Hong Kong Disneyland Resort and higher guest spending at Hong Kong Disneyland Resort, partially offset by labor cost inflation at Disneyland Paris.

Studio EntertainmentStudio Entertainment revenues for the quarter decreased 13% to $1.3 billion and segment operating income decreased 65% to $77 million. Lower operating income was primarily due to decreases in worldwide home entertainment and worldwide theatrical distribution and higher film cost write-downs.

The decrease in worldwide home entertainment was primarily due to lower unit sales reflecting the strong prior-year performance of Toy Story 1 and 2 titles and the animated version of Alice in Wonderland in the domestic market and Up in international markets. These decreases were partially offset by higher net effective pricing due to increased Blu-ray format sales. Lower results in worldwide theatrical distribution reflected the performance of Mars Needs Moms in the current quarter which also drove higher film cost write-downs. Current quarter theatrical distribution results also included Tangled and Tron: Legacy, primarily internationally, while the prior-year quarter included the worldwide release of Alice in Wonderland.

Consumer ProductsConsumer Products revenues for the quarter increased 5% to $626 million and segment operating income increased 7% to $142 million as improvements at the Disney Store North America and Merchandise Licensing were offset by a decrease at Publishing.

The increase at the Disney Store North America was primarily due to comparable store sales growth and improved margins reflecting the strength of Tangled and Toy Story merchandise. Improved Merchandise Licensing results reflected the strong performance of Cars and Tangled merchandise. The decrease at Publishing was driven by minimum guarantee shortfall recognition in the prior-year quarter.

Interactive MediaInteractive Media revenues for the quarter increased 3% to $159 million and segment operating income decreased by $60 million to a loss of $115 million. Decreased operating results were driven by the acquisition of Playdom, including the impact of acquisition accounting, and higher mobile and virtual world product development costs.

OTHER FINANCIAL INFORMATIONCorporate and Unallocated Shared ExpensesCorporate and unallocated shared expenses increased from $91 million to $122 million driven by the timing of expenses and higher compensation related costs.

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