Will Walt Disney Company Earnings Ever Stop Growing?

The entertainment giant can seemingly do no wrong.

May 5, 2014 at 10:40PM

On Tuesday, Disney (NYSE:DIS) will release its quarterly report, and investors have high expectations for the House of Mouse's earnings growth. With deals with Netflix (NASDAQ:NFLX) and other content providers, Disney has done a great job of making the most of its impressive content collection, putting smaller players like Twenty-First Century Fox (NASDAQ:FOXA) to shame. But shareholders want to know whether Disney can keep up that impressive record.

Disney's offerings span the entertainment spectrum, from movies and television programming to theme parks, consumer products, and interactive media. But what has really set Disney apart is its ability to take untapped groups of content and turn them into marketable franchises that take advantage of Disney's full menu of entertainment options. All that's left for Disney to prove is how well it can execute on the huge amount of content it has available. Let's take an early look at what's been happening with Disney over the past quarter and what we're likely to see in its report.

Dis
Source: Disney.

Stats on Disney

Analyst EPS Estimate

$0.95

Change From Year-Ago EPS

20%

Revenue Estimate

$11.23 billion

Change From Year-Ago Revenue

6.4%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

How high can Disney earnings soar?
In recent months, investors have gotten even more bullish about Disney earnings, boosting their views on first-quarter earnings by $0.02 per share and adding a dime per share to their full-year fiscal 2014 projections. The stock has climbed by 11% since late January.

Dis

Source: Disney.

Much of the gain in Disney stock came from its fiscal first-quarter earnings. Disney net income jumped 33%, and adjusted earnings per share topped what investors had expected to see by $0.12 per share. The unexpected extent of the movie Frozen's blockbuster success surprised the company and its shareholders, creating a worldwide phenomenon that included unparalleled demand for merchandise related to the movie. Disney's media-network division also enjoyed sharp growth, with earnings climbing 20% due to better advertising revenue from ESPN and higher fees for the Disney Channel. Record attendance at several theme parks also drove Disney's results higher. The value of all these properties makes it hard for Twenty-First Century Fox and other media rivals to keep the pace.

Disney has worked increasingly closely with Netflix to try to bolster its overall growth and make the most of the value of its content. In February, Disney reached a new deal with Netflix for exclusive rights to stream the sixth season of the popular series Star Wars: The Clone Wars. With Netflix continuing to produce impressive growth in subscriber counts, Disney has bet on the streaming giant's ongoing success in that new but important content-distribution niche, and with future deals to include new releases from Pixar and Marvel, both Disney and Netflix will want to see viewers jump at the chance to see exclusive content.

The biggest challenge that Disney faces is keeping up with its past success. Given how well Frozen performed, many investors want to see similar results from the May release of Maleficient and Angelina Jolie's take on Sleeping Beauty's arch-nemesis. Yet with Disney having set the bar so high, it becomes ever more difficult for it to keep producing similar wins.

Still, with so many properties to choose from, Disney's potential seems almost unlimited. With the company having released the primary cast of the seventh Star Wars movie, excitement has already started building toward a new franchise that will launch late next year but last for years into the future. Meanwhile, hit after hit from the Marvel universe bodes well for Disney's prospects even longer, given the breadth of characters to choose from and the willingness of devoted fans to see multiple installments of the most popular of those characters.

In the Disney earnings report, watch to see whether the entertainment giant's profit growth comes from. As popular as movie offerings are, they make up only a smart part of Disney's empire, and keeping your eye on all of the company's divisions is important in making sure you don't miss out on key happenings at Disney.

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Dan Caplinger owns shares of Walt Disney. The Motley Fool recommends and owns shares of Netflix and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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