Media and entertainment giant The Walt Disney Company (DIS – Free Disney Stock Report), which is also a member of the Dow 30, has registered fourth-quarter and fiscal 2012 (year ended September 29th) results that were up nicely from the year-earlier periods. However, September-term numbers were a bit shy of investors' expectations, and the stock fell notably on the news.
Fourth-quarter earnings climbed 15%, to $0.68 a share, on a 3% top-line gain. Full-year net income advanced 18%, and share net came in at $3.13, two pennies short of our estimate, but 23% above the year-earlier tally. Revenues, on the other hand, eked out a more modest 3% year-over-year gain, totaling $42.278 billion. Overall, despite facing higher operating expenses, the company did well for the year.
Its Cable Networks continued to impress during the fourth quarter. Operating income at this segment advanced 9%, both during the interim and for the full year. This performance was driven by higher affiliate and advertising rates at ESPN and increased equity income from A&E and the Disney Channel. ESPN extended its rights to the Wimbeldon Championships, and experienced higher programming costs from contractual rate increases for college sports, NFL, Major League Baseball, and the NBA, which weighed on margins somewhat. Additionally, losses at the joint venture Hulu widened due to higher marketing and programming costs.
Recent investments at Disney's Parks and Resorts segment also began to pay off during the September period. Operating income climbed 9% for the quarter, and 10% for fiscal 2012. Its new cruise line, Disney Fantasy, also contributed nicely, as did increased attendance and guest spending at the Disney theme parks and resorts. These results helped offset increased costs from resort expansion and the rollout of new offerings. Still, spending to support the company's system infrastructure, higher employment benefit costs, and labor-cost inflation will likely result in hefty operating expenses in the coming quarters.
In addition, ongoing merchandise licensing efforts helped the Consumer Products business grow nicely. But, things did not pick up at the company's Interactive Media segment. What's more, Disney's Studio Entertainment segment did not fare well in the fourth quarter. Fewer theatrical releases and decreasing home entertainment revenues led to a 32% decline in income at this segment in the September period. Nevertheless, the success of some of its blockbusters earlier in 2012 helped earnings climb 17% for the full year.
The company began its holiday shopping a little early this year. In late October, Disney announced plans to purchase Lucasfilm for $4.05 billion. Sole shareholder George Lucas has already slated another Star Wars trilogy, which is scheduled to be released starting in 2015. We think this deal, still subject to certain regulatory and antitrust approvals, will augur nicely for the company over the long haul, much like the Marvel and Pixar mergers. Disney will likely leverage the Jedi franchise's brand equity and Lucasfilm's technology in its other films.
Looking ahead, fiscal 2013 may get off to a somewhat sluggish start. It is unclear how much of a toll Hurricane Sandy took on Disney's parks and other businesses. Moreover, due to the upcoming fiscal calendar, the company will be spreading its winter holiday income between the first and second quarters, which may hurt year-over-year comparisons. Further, higher operating expenses will likely persist, and may weigh on margins at the Cable Networks and Parks and Resorts segments during the December period.
Consequently, we have shaved a nickel from our fiscal first-quarter earnings estimate, and now look for profits to remain steady at $0.80 a share. Even so, Disney, emboldened by its strong brand equity, should gain traction as fiscal 2013 proceeds, and we look for the bottom line to increase 10%, to $3.45 for the full fiscal year.
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.