Disney (DIS - Free Disney Stock Report), the media and theme park giant and Dow-30 component, has reported fiscal third-quarter (ended June 30th) share earnings of $0.78 (excluding a restructuring charge of $0.01 per share). This tally compared favorably with our $0.73 estimate and the prior-year mark of $0.67. Affiliate revenues from the ESPN sports network, previously expected to be deferred until the September quarter, were responsible for the strong performance, contributing $0.06 a share to the bottom line. However, Disney shares are trading sharply lower, on some concerns about the broader market. The stock may also be a victim of some brokerage house downgrades.

As anticipated, the Media Networks segment reported somewhat slower growth in the term, with revenues and operating income advancing 5% and 11%, respectively, year over year. In cable, results at ESPN and various Disney channels continued to improve, partially offset by a slight decline at the ABC Family network. In particular, ESPN remains a cash cow for Disney, and continues to benefit from higher contractual rates and lower programming and production costs. At ABC, revenues fell modestly, with reduced rates for sports programming negating a moderate bump in ad revenues. But lower costs pushed ABC's operating earnings up 20% from the year earlier, despite the nominally lower revenues.

Parks & Resorts revenues advanced a solid 12% in the quarter, thanks largely to higher guest spending domestically due to rising average ticket prices, room rates, and concession spending. Although Disney Cruise Line and Hong Kong Disneyland also fared well, their impact was offset by declining business at the Paris and Tokyo properties.

The strong box office performance of Pirates of the Caribbean: On Stranger Tides was not enough to turn the tide at the Studio Entertainment division, with earnings down from the prior year due to the unfavorable timing of several movie releases. Also limiting profits, the box office receipts delivered by Cars 2 and Thor (distributed by Paramount) in the current quarter paled in comparison with those delivered by Toy Story 3 and Alice In Wonderland in the prior year.

Looking to the fourth quarter, we anticipate similar trends. Networks will likely face higher sports programming and production expenses, due to contractual increases, as well as difficult comparisons at ABC. In addition, the studio comparisons are liable to be challenging yet again. Although we've trimmed a nickel from our fiscal 2011 share-net forecast, to $2.55, that would still mark a vast improvement from last year's $2.07 tally. Furthermore, Disney stock has above-average total-return potential to 2014-2016.

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.