Media and entertainment conglomerate Walt Disney Co. (DIS – Free Walt Disney Stock Report) reported solid second-quarter results (fiscal 2013 began September 30, 2012). Earnings came in at $0.83 a share, up 32% from the year-earlier period, and $0.13 ahead of our estimate. Revenues climbed 10%, to $10.6 billion, thanks to strength across its business lines. (These results include gains from its acquisition of a controlling interest in UTV Software Communications as well as restructuring costs.)
Disney's Parks & Resorts, Consumer Products, and Interactive divisions registered double-digit profit advances year over year. Income at its Media Networks climbed in the upper single digits. Further, its Studio Entertainment segment returned to the black this year.
Last year's hefty capital program, concentrated on its Parks & Resorts, continues to pay off. Though higher operating costs (including investments in its systems infrastructure, labor expenses, and inflation) nipped at its profit margins, higher attendance and improved guest spending ought to help its domestic and international parks prosper going forward. Disney's amusement parks also benefited from the shift in timing of the New Year and Easter holidays (which both occurred during the latest period). However, by the same token, the 2013 holiday schedule will likely adversely affect fiscal third-quarter results.
In 2012, Disney's Studio Entertainment incurred an $84 million loss at the hands of the box office flop, John Carter. This year's Oz The Great and Powerful and Wreck-It Ralph enabled the movie studio to return to profitability. Looking ahead, we imagine its queue of summer blockbusters, including Monsters University, will help Disney studios continue to capture audiences. Too, last week's theatrical release of Iron Man 3 should reflect nicely on its June-quarter results. Moving forward, its slate will include other sequels that will help bolster its brands (i.e., the next installments of The Avengers franchise and Finding Dory, leveraging Nemo's popularity), as well as new themes and characters.
Brand-building opportunities, along with better results from its retail business and increased merchandise licensing ought to continue to bolster its Consumer Products.
Disney Interactive's results benefited from growth in its Japan-based mobile business. Disney plans to launch Affinity this summer (it's now in beta testing). The video-game platform will allow users to create story lines starring Disney and Pixar characters. This division will likely see good comparisons in the coming years, as Disney invests in its social media and video gaming platforms. Earlier this week, Disney inked a deal with Electronic Arts (EA), allowing the company to develop Star Wars titles for consoles and computers. (The conglomerate eliminated Lucasfilms' video gaming arm, LucasArts, soon after it purchased the Jedi franchise.)
Lastly, Media Networks experienced mixed results during the quarter. Although its cable channels, namely ESPN, benefited from increased affiliate revenues and higher advertising income, which offset greater operating costs, Disney's broadcasting unit did not fare as well. ABC Television suffered from higher programming expenses and wavering advertising revenues, causing television profits to slump about 40% from the prior year. In the coming years, the company's partnerships with other distributors (such as Comcast (CMCSA) or Hulu) should also help it better monetize its content.
All in all, we have added a nickel to our bottom-line forecast. We now look for profits to increase 10%-12%, to $3.50 a share in fiscal 2013. Likewise, we expect the media conglomerate's earnings to increase at a similar clip in fiscal 2014.
Nevertheless, the investment community was a bit disappointed. The Dow-30 component, which reached a new all-time high earlier just yesterday, gave back some ground following the earnings release.
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.