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Dow-30 Earnings: The Walt Disney Company - Second Quarter Fiscal 2012
Media and entertainment conglomerate Walt Disney (DIS – Free Disney Stock Report) has reported solid fiscal second-quarter (ended March 31st) results. Its strong brands, Cable Networks, and Parks and Resorts supported its recent performance and offset losses from its Studio operations. Share net came in at $0.63, 29% above the year-earlier period and $0.08 above our estimate. (Note: We have chosen to include a gain from Disney's recent acquisition of UTV Software Communication, as well as some restructuring and impairment charges, excluding this would have resulted in earnings of $0.58 a share.) Additionally, the top line climbed 6% on a year-over-year basis. The stock rose notably at the outset of trading today, in a sharply lower stock market.
Revenues at Disney's Media Networks (Cable and Broadcasting) jumped 9% during the interim. Stronger affiliate and advertising revenues boosted totals at ESPN and the Disney Channel. Plus, this helped offset the negative impact from higher programming and production costs. Too, the Disney Channel is paving the way for global growth.
Looking ahead, the company's recent deal with Comcast (CMCSA) (and efforts to better monetize its content library) seems to augur well. Nonetheless, this agreement will probably decrease net deferred revenues at ESPN. In addition, the sports channel may well incur the increased expenses associated with the higher number of NBA games during the third quarter (the 2011 professional basketball season was shortened due to a labor dispute, with games being played closer together). Regardless, we believe that advertising revenues and affiliate revenues will benefit from contractual rate increases, and will continue to support the company's Cable Networks segment.
Disney pared some costs at its Broadcasting division (likely due to the cancellation of several high-budget daytime programs and the absence of The Oprah Winfrey Show). Too, the company reaped higher advertising revenues thanks to increased primetime ad slots at its ABCTelevision Network, which helped counter the decline at its owned television stations.
Results at Parks and Resorts were also strong, and revenues advanced 10% over the year-earlier period, thanks, in part, to recent investments in theme parks, resorts, and cruise lines. Disney experienced higher costs due to resort expansion, investments in the systems infrastructure, new guest offerings, and general cost inflation. Still, Parks offset these weighty expenses thanks to increased attendance, occupancy, and guest spending. The company may well raise average ticket prices, hotel and food rates, and merchandise prices to drive profitability higher. Even though Disneyland Paris continued to struggle, its domestic operations and properties in Asia have performed nicely over the past few months. Also, year-to-year comparisons at the Tokyo Disney Resort reflect the suspension of operations following the March, 2011 earthquake and tsunami.
Increased merchandising efforts helped spur totals at Consumer Products (revenues were up 8%), offsetting the decline from the company's North American retail division. Revenues from Interactive Media grew 13% thanks to social media and console gaming. The company plans to revamp Disney.com and to boost its other interactive platforms.
Disney's Studio Entertainment division, however, registered a $84 million loss for the quarter. Even though the company benefited from the release of The Muppets and the re-release of Beauty and the Beast in 3D, the worldwide box office failure of John Carter hurt totals.
Nevertheless, the studio's record-breaking opening weekend of Marvel's The Avengers should help this segment recover in the June quarter. Plus, Disney's other big-budget summer movies and solid slate for late 2012 and 2013 should boost results going forward.
Looking ahead, we believe Disney will continue to leverage its brands. In addition, the entertainment conglomerate will likely concentrate on building its global footprint. The company has been using its cash to reduce the share count and has, year to date, spent $1.9 billion on stock repurchases. The Board of Directors also raised the annual dividend payout earlier this year, to $0.60 a share. What's more, Disney has a very healthy balance sheet which should afford it good financial flexibility to grow over the long haul. For now, we are increasing our fiscal 2012 bottom-line estimate by a dime, to $3.05 a share. The stock remains a quality long-term holding, in our view.
About The Company:The Walt Disney Company operates Media Networks such as ABC and ESPN, and Studio Entertainment. Its world famous parks and resorts include Disneyland, Walt Disney World (Magic Kingdom, Epcot, and Disney’s Hollywood Studios), while the company earns royalties from Tokyo Disneyland and manages Disneyland Resort Paris and Hong Kong Disneyland. It also operates a cruise line and Consumer Products and Interactive Media segments. ABC was acquired in February, 1996, Pixar in May, 2006, and Marvel in December, 2009.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.