Media conglomerate and Dow-30 component The Walt Disney Company (DIS – Free Walt Disney Stock Report) has posted blockbuster fiscal third-quarter results (year ends September 27th).
Even though the stock price didn't move much in premarket trading, investors should note that the equity still gained ground, reaching a new 52-week high, earlier this week, thanks to the weekend opening success of its latest Marvel release, Guardians of the Galaxy.
All told, the media empire posted record results for the June period. Share net advanced 24%, to $1.28, coming in $0.14 ahead of our estimate. And revenues climbed 8%, to roughly $12.5 billion (in line with our forecast).
Disney registered solid profit comparisons for most of its operating segments (save for its Media Networks, which we will discuss below).
The success of Disney's Studio Entertainment arm, once again, headlines its latest earnings release. The movie production subsidiary's bottom line more than doubled during the June interim. While Frozen continued to top the marquee, the international theatrical distribution of its other recent films also lifted totals. And domestically, the Captain America sequel, Maleficent, and Million Dollar Arm, did better at the box office than last year's summer releases (including Monsters University and Iron Man 3). Looking ahead, we believe that the upcoming Disney, Marvel, Pixar, and Lucasfilms/Star Wars slate will continue to propel this segment.
On a related note the company's strong branding efforts and the buildout of its movie franchises (thanks to merchandising and character licensing moves) ought to spur results at its Consumer Products unit.
Parks and Resorts also put in a decent showing. Though the media conglomerate has scaled back some of its capital expenditures over the past few months, construction of Disney Shanghai is now nearly complete, and management now anticipates the grand opening will take place within the next six months. Increased guest spending and higher attendance, thanks in part to the timing of the Easter holiday, offset rising operating and labor costs. Too, MyMagic+, which helps guests pre-plan their visits to Disney's domestic theme parks, has also begun to build momentum.
Technological investments in its digital platform should also augur nicely. Disney's Interactive segment posted profits for the past four consecutive quarters (it had been dipping in and out of the red in the prior two years), owing to higher game sales, thanks in large part to Disney Infinity. (That game console, which incorporates Disney and Marvel characters, was rolled out at the end of fiscal 2013.)
Media Networks, on the other hand, did not fare as well as the other operating segments over the last few months. Higher programming and production costs, namely at ESPN hurt totals. This offset the benefits of better advertising revenues (the FIFA World Cup helped boost the rates and units of airtime sold), as well as better affiliate rates at its broadcasting and other cable subsidiaries.
Looking ahead, margin expansion efforts and ongoing stock repurchases should continue to boost per-share comparisons. What's more, management ought to reinforce its brands and leverage its movie franchises to help it grow over the long haul. For now, we are adding $0.15 to our fiscal 2014 bottom-line estimate, and look for profits to climb between 25% and 30% to $4.35 a share.
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.