Walt Disney Co.

shares slid after the

world’s biggest entertainment company

gave a

tepid forecast for growth

in the current period and the market awaits news on who will be its new leader.

Disney said it expects challenges

attracting international tourists

to its domestic parks in its fiscal second quarter and warned of ongoing increased costs for sports rights. The forecast overshadowed results for the quarter ending Dec. 27 that were boosted by record sales at its theme parks division.

The stock fell as much as eight per cent at the market open in New York on Monday, the biggest intraday decline since November. Disney’s share price has been under pressure as investors seek clarity on who will succeed succeed Bob Iger as

chief executive officer

when he steps down this year.

The bulk of earnings at the world’s largest entertainment company were delivered by the parks and cruises unit led by Josh D’Amaro, a leading candidate to replace Iger.

Still, Disney cautioned that it is expecting only “modest” growth in the segment in the current quarter, due to a combination of factors including demand headwinds from international tourists at domestic parks, pre-launch costs for the Disney Adventure cruise ship and pre-opening costs for World of Frozen at Disneyland Paris.

“International visitors to United States theme parks don’t stay in Disney hotels as much, which is reducing visibility into trends,” chief financial officer Hugh Johnston said on a conference call with investors. Disney has shifted some of its marketing toward domestic audiences to maintain attendance rates, he said.

The forecast comes after a six per cent increase in operating income at the experiences unit in the fiscal first quarter to US$3.3 billion. Revenue jumped six per cent to a record US$10 billion, the company said in a statement Monday. Bookings at the company’s flagship Walt Disney World are up five per cent this fiscal year, Johnston said, with growth weighted to the back half of the period.

Disney’s board is aligning on promoting D’Amaro to CEO and will vote on naming a new leader in the coming week, Bloomberg reported on Sunday. The Burbank, Calif.-based entertainment giant has said that it will name a successor before the end of March.

Whoever takes the new CEO title will face challenges to maintain growth in the parks unit while boosting the streaming division to help overcome a shrinking traditional TV market.

Earnings per share for Disney overall in the period were US$1.63, beating the average analyst estimate of US$1.56. Sales rose five per cent to US$25.98 billion.

In the entertainment division, led by Dana Walden and Alan Bergman, profit fell by more than a third to US$1.1 billion in the fiscal first quarter. It was held back by a decline in political advertising on

Disney’s television channels

and

streaming services

, as well as by marketing costs tied to the release of James Cameron’s

Avatar: Fire and Ash

. Disney had flagged in November that the

entertainment unit

would incur those one-time expenses.

Streaming revenue increased 11 per cent in the quarter, boosted by subscription revenue for Disney+ and Hulu, while operating profit for the segment jumped 72 per cent to US$450 million.

For the current quarter, Disney forecast that operating income will be flat compared with the same period last year in the entertainment division. The company expects a profit of US$500 million in its streaming TV business, however, an increase of US$200 million from the same period last year.

Profit at the sports division, led by Jimmy Pitaro, fell 23 per cent to US$191 million, weighed down by higher rights fees for new WWE and college sports packages. Subscriber fees at the division that includes ESPN also fell. A dispute with YouTube last quarter over carrying channels such as ABC and ESPN adversely impacted operating income in the unit by about US$110 million, Disney said. It expects operating income at the sports unit to decline US$100 million in the current quarter due to higher sports rights expenses.

Disney and the National Football League closed the acquisition of many of the NFL’s media assets including the NFL Network and the RedZone Channel. The agreement values the NFL’s 10 per cent ownership in ESPN at US$3 billion, Disney said.

For the full year, Disney is projecting double-digit growth in earnings per share. The company also said it is on track to buy back US$7 billion worth of stock this year.

Bloomberg.com

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