Disney Hit After Downgrade

Despite a solid quarter in which revenues rose 6 percent and earnings jumped 77 percent, shares of The Walt Disney Co. took a nosedive in early trading, mainly on the heels of an analyst downgrade.

Merrill Lynch & Co. analyst Jessica Reif Cohen downgraded Disney to near-term "neutral" from "accumulate" and trimmed her earnings outlook for the company. Although Cohen kept her long-term "buy" rating on the stock, the downgrade was prompted by concerns about a shrinking advertising market.

Disney shares plummeted 14.75 percent in early trading on Nov. 9, dropping $5.44 each to $31.44.

Cohen was most concerned with declining ratings for the blockbuster hit
Who Wants to Be a Millionaire
, the primetime linchpin of Disney's ABC television network.

"Given the weakening advertising environment, we do not expect the upside surprises Disney reported last year. We are also concerned about the 2001 upfront [advertising] market, particularly after two consecutive years of double-digit increases."

Despite the analyst concerns, Disney chairman Michael Eisner said that the downturn in advertising revenue is not expected to last long.

"We don't see the dismal-looking future that people are talking about, beyond this momentary softness out of that exhilarating high in the spring," Eisner said in a conference call. "Maybe I'm wrong-I'm only a movie guy-but I think people are nuts out there."

Excluding its interest in Disney Internet Group, the company reported a profit of $898 million, or 20 cents per share for the quarter, up from $437 million, or 7 cents per share the year before. Including DIG, Disney's profit in the most recent period was $240 million, or 11 cents per share.

Revenue was $6.03 billion, up from $5.69 billion a year ago.

At the cable networks, including ESPN and The Disney Channel, revenue increased 16 percent in the quarter to $911 million, and operating income rose 2 percent to $226 million. For the year, cable network revenue was up 20 percent to $3.5 billion and operating income increased 12 percent to $1.1 billion.

Disney president Robert Iger said subscribers to the Disney Channel increased 18 percent in the quarter, largely due to the service's move to basic from premium on many systems. He added that ESPN benefited from the "majority of advertising budgets chasing the 18 to 34-year-old male demographic," the all-sports network's core audience.