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Stock Analyst Update

Disney Reports Mixed Quarter Despite 'Millionaire' Success

Walt Disney (DIS) reported its eighth straight quarter of declining net earnings Wednesday, with a strong performance by the ABC television network offset by weakness in other areas and steep losses in the company's  Internet division. Disney's revenue did grow 14% for the quarter to $6.2 billion, and earnings excluding the Internet losses were $0.18 a share, slightly better than Wall Street expectations. However, the heavy losses incurred by dragged Disney's net income down to $0.08 a share, down from $0.11 a year ago.

The bright spot for Disney was the performance of ABC, which has leaped to number one in the ratings on the strength of the megahit "Who Wants to Be a Millionaire?" Company president Bob Iger noted during Wednesday's conference call that "Millionaire" has become a franchise in its own right, which Disney has been able to leverage into computer games and the Internet. Overall, revenue for the company's Media Networks division, which includes ABC and cable networks such as ESPN, increased by 30%, and operating income grew 48%.

However, the performance of Disney's other major divisions was sluggish at best. Top-line growth excluding the networks was only 6%, and earning growth was similarly unremarkable. A series of box-office flops such as "Mission to Mars," "Cradle Will Rock," and "The Cider House Rules" caused profits at the company's Filmed Entertainment division to plunge 97%. The $200 million loss from sliced Disney's overall earnings in half while contributing little to revenue.

Disney officials acknowledged the quarter's shortcomings during Wednesday's call, but said they're looking to the long term and building the foundation for future growth. These long-term plans are a major reason behind Disney's well-publicized dispute with Time Warner  this week over access to cable systems.

Disney is already an early leader in combining TV and the Internet, a position that is threatened by the upcoming merger of Time Warner and AOL . Thus, Iger said that Disney has insisted on addressing digital content issues in its negotiations with Time Warner this week. CEO Michael Eisner added that "this is about access for everyone," and said that smaller content companies will be the big beneficiaries of Disney's stand.

This long-term perspective makes it tough to gauge Disney's chances for pulling out of its two-year slump. This company still has plenty of problems, and investors might want to wait to see whether Disney's turnaround is for real.

David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.