Jan 07 - As investors prepare for fourth-quarter earnings season, likely cost cutting at Walt Disney could provide a sneak peak of the economic challenges for corporate America both in the past quarter and for the year ahead. Bobbi Rebell reports.
Mickey Mouse's job is probably safe- but maybe not so for many of his co-workers at Disney. Sources tell Reuters layoffs- and other cutbacks- could be coming at Disney's studio and other units. In Disney's most recent earnings report, net income was up 14 percent percent-but overall revenue was up just 3 percent. Disney is not alone in its revenue challenge. It's a concern for many U.S. corporations- who have been slashing costs to perk up earnings. But it is revenues that will tell the real story according to Thomson Reuters Research Analyst Greg Harrison: SOUNDBITE: GREG HARRISON, RESEARCH ANALYST, THOMSON REUTERS (ENGLISH) SAYING: "Revenues give a better clue as to what the demand is in the economy. You know they can't really be manipulated as easy as earnings can and so it gives a very straight forward measure of how the business is doing." According to Thomson Reuters research, revenue growth is expected to have grown just 1.9 percent in the 4th quarter - that's down dramatically from earlier estimates of 7.2 percent back in April. REPORTER BRIDGE: BOBBI REBELL, REUTERS REPORTER (ENGLISH) SAYING: "But ignoring the top line- and focusing on the bottom line has its consequences for the economy." SOUNDBITE: GREG HARRISON, RESEARCH ANALYST, THOMSON REUTERS (ENGLISH) SAYING: "It is not a great sign for employment, obviously, if they are boosting their profits by taking away people's jobs." The trend however is expected to continue: JP Morgan Private Wealth Management Chief Economist Anthony Chan: SOUNDBITE: ANTHONY CHAN, CHIEF ECONOMIST, JP MORGAN PRIVATE WEALTH MANAGEMENT (ENGLISH) SAYING: "I think U.S. businesses will continue to try to improve efficiency, that has really been the mantra that has generated faster corporate profit growth relative to overall economic growth and I don't expect that to change. Some firms will be able to do it by increasing productivity. Others may have to do it by freezing hirings, others might even have to do it by cutting staff to some extent but the direction of change is going to be the same for all companies and that is try to generate higher productivity and higher efficiencies in order to maintain profit margins." Aluminum company Alcoa will unofficially launch earnings season when it reports its results after Tuesday's market close.