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2018-05-08 23:05:03
Disney’s Strong Quarter Is Shadowed by Comcast’s Maneuvers for Fox

LOS ANGELES — The Walt Disney Company reported its strongest quarterly results in two years on Tuesday, streaking past Wall Street expectations for profit and revenue growth thanks in large part to the success of “Black Panther.” But that strong performance was shadowed by maneuvering by Comcast to upend Disney’s pending acquisition of 21st Century Fox assets.

Robert A. Iger, Disney’s chief executive, struck a $52.4 billion all-stock deal in December to buy most of 21st Century Fox, the conglomerate controlled by Rupert Murdoch. In a securities filing last month, Fox disclosed that its board had spurned a competing bid from Comcast that was 16 percent higher on a per-share basis because of antitrust concerns and the belief that Disney shares would be more valuable over the long haul.

But Comcast — the same Comcast that tried to swallow Disney in 2004, an attempt Disney fought off but has never forgotten — is now weighing a hostile bid for the Fox businesses. Over the past week, Comcast has met with investment banks to line up roughly $60 billion in financing to mount an all-cash push for Mr. Murdoch’s entertainment empire, according to two people briefed on the conversations who spoke on the condition of anonymity to discuss a private process.

Comcast declined to comment.

Mr. Iger, speaking on a conference call with analysts after Disney reported a 23 percent increase in quarterly profit, presented the deal as a fait accompli. “We are confident that the assets that we are in the process of acquiring easily fit within our new structure once the deal is approved,” he said, referring to Disney’s recent reorganization.

He never mentioned Comcast during the call, and pre-empted any analyst queries about 21st Century Fox. “We are still deep in the regulatory process so I can’t share any more information or engage in further speculation about the deal, except to say that we strongly believe in the value of those assets,” he said.

Mr. Iger’s confidence may stem from Wall Street’s reaction to Comcast’s jockeying. Its meetings with bankers, first reported by Reuters on Monday, prompted a 5.6 percent drop in Comcast shares. The stock has fallen 11 percent since late April, when speculation about a possible hostile bid by Comcast first began to swirl.

Many analysts have recoiled at such a bid, which could leave Comcast with more than $170 billion in debt — a sum that would make it one of the largest corporate debtholders in American history. “We do not believe Comcast needs another media asset,” Gregory Williams, a Cowen and Company analyst, wrote in a research note.

But at least one analyst, Richard Greenfield of BTIG Research, a persistent Disney critic, cheered on Comcast on Tuesday. “Dear Rupert: Listen to Brian in the Battle for Fox,” he wrote, referring to Comcast’s chief executive, Brian Roberts.

At the very least, the possibility of a Comcast bid seemed to hang over Disney shares, which edged slightly down despite the strong quarterly report. “The stock is going to be pretty sideways until this gets resolved,” said Robin Diedrich, an analyst at Edward Jones.

Comcast has indicated that a run at 21st Century Fox would depend on the outcome of the pending merger by AT&T and Time Warner. Antitrust regulators have been battling that corporate marriage in court; arguments have now concluded and a decision is expected by June 12.

Separately, Comcast started a bidding war with Mr. Murdoch in April for control of Sky, a European pay-television provider. Mr. Murdoch already owns a slice of the company and has agreed to sell to Disney as part of the 21st Century Fox trove.

For the quarter, Disney reported net income of $2.94 billion, or $1.95 per share, an increase from $2.39 billion or $1.50 a share, in the same period a year earlier. Analysts had expected per-share profit of $1.69. Disney’s revenue totaled $14.55 billion, a 9 percent increase; analysts expected $14.08 billion.

The strong results for the second fiscal quarter, which ended March 31, were driven by Walt Disney Studios, where operating income soared 29 percent, to $847 million. The biggest contributor was Ryan Coogler’s “Black Panther,” which has collected $1.34 billion worldwide since its record-breaking February release. Sales of “Star Wars: The Last Jedi” on DVD and video-on-demand services also helped.

But the quarter also served as a reminder of how volatile the movie business can be — even for Disney, which has dominated Hollywood in recent years. Ava DuVernay’s “A Wrinkle in Time,” released by Disney on March 9, was a financial debacle, costing at least $200 million to make and market and taking in just $127 million worldwide. After theater owners get their cut, Disney will be left with roughly $60 million.

“A Wrinkle in Time” performed so poorly overseas that Disney decided not to release it in some countries, although DVD sales, TV reruns and themed merchandise could ultimately generate another $30 million or so.

But Disney’s theme park division had another sizzling quarter. Operating income jumped 27 percent, to $954 million. Walt Disney World in Florida benefited from higher ticket prices and hotel room rates; a shift in the timing of the Easter holiday helped increase attendance by 5 percent. Disneyland Paris and Hong Kong Disneyland also had improved results.

Disney’s biggest unit, Media Networks, which includes ESPN, ABC and Disney Channel, reported revenue of $6.14 billion, a 3 percent increase. But operating profit declined 6 percent, to $2.08 billion, because of higher costs — notably spending on unprofitable streaming services like ESPN+ and Hulu — and subscriber declines at ESPN. Ongoing struggles at Freeform, a channel aimed at young adults, also dented the results.

ESPN+ was introduced in the quarter and represents one of the ways that Mr. Iger is trying to lessen the Magic Kingdom’s reliance on the atrophying cable television business. The app-based service costs $5 a month and includes thousands of sporting events not shown on television, along with exclusive programming like the “30 for 30” sports documentaries and a basketball analysis show hosted by the former Lakers star Kobe Bryant.

Mr. Iger said he was “very encouraged” by the early response to ESPN+ but declined to provide subscriber numbers. “Most importantly, the technology is working,” he said. “We’re going to continue to improve it.”

Earlier on Tuesday, Disney added live mixed martial arts matches to the ESPN+ portfolio under a deal with U.F.C. Kevin Mayer, chairman of Disney’s international and direct-to-consumer division, cited U.F.C.’s “enthusiastic, growing fan base” in announcing the multiyear deal, which analysts estimated would cost Disney roughly $150 million a year.