Disney (DIS - Free Disney Stock Report), the television, theme park, and filmed entertainment giant, has reported fiscal 2011 second-quarter (ended April 2nd) results. Share earnings of $0.49 were a penny better than the comparable 2010 result, but fell $0.11 short of our estimate. As we anticipated, income from the Media Networks segment increased solidly. Studio Entertainment profits, though, decreased to a greater extent than we had expected. Also, in the Parks & Resorts operations, higher costs, and the impact of the natural disasters in Japan, appear to have hurt that unit's earnings. The shares reacted rather strongly to this disappointing report, falling some 5% in early trading on the day following the after-market profit release.

Operating income from Cable Networks improved about 15% year over year, as gains were realized at the core ESPN network, as well as the ABC Family, and the Disney Channels. Higher advertising rates and volumes assisted ESPN's results. Plus, affiliate revenues benefited from contractual rate hikes. Additional production costs, mostly related to college football, had only a modest negative impact. As for ABC, where margins are narrow, income climbed 36%. This upturn stemmed primarily from lower programming and production costs. ABC's advertising revenues rose behind higher rates, despite lower ratings.

The film studio's profits declined by about two-thirds from the year-earlier tally. Much of the decrease can be attributed to a difficult comparison, given the strong box office performances of Toy Story 3 and  Alice in Wonderland last year. Compounding this effect was the poor performance of this year's Mars Needs Moms, which also resulted in film write downs. Consequently, growth in Consumer Products income was more subdued than in recent quarters.

Parks & Resorts posted a 3% operating income falloff, despite a 7% top-line increase. Expenses for the launch of a new cruise ship, along with the suspension of operations at Tokyo Disney Resort, hampered profitability. Helping to offset these factors was revenue growth from the domestic and other international resorts. Guest spending was boosted by an increase in the average ticket price and higher room rates.

Looking ahead, we continue to expect profit advances from the television properties to drive bottom-line gains. Studio results should also pick up, in light of a strong slate of upcoming releases. And, given a favorable environment, we think the parks will return to profit growth. In all, we have cut our 2011 share-net estimate by a dime, to $2.60.

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, 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.