Disney: A Spectacular Earnings Performance, and a Stage Set for Growth

Source: Disney.

Walt Disney (NYSE: DIS  ) delivered impressive numbers for the first quarter of 2014. Performance was strong across the board, and the company is doing materially better than competitors such as Time Warner (NYSE: TWX  ) and Viacom (NASDAQ: VIAB  ) . Perhaps more important, Disney continues setting the stage for growth in the years ahead.

Spectacular performance
Sales during the quarter ended March 29 grew by 10%, to $11.6 billion, versus $10.6 billion in the same period of 2013. This was comfortably above analysts' estimates of $11.65 billion in sales for the quarter.

All of the company's business segments reported growing revenues, but the studio division was the big star, with revenues jumping by an impressive 35% versus the prior year, to $1.8 billion. Frozen has become world's highest-grossing animated film of all time, generating fantastic performance for Disney in the last quarter, and plenty of opportunities for growth in the medium term.

Overall operating income increased by 34%, from $2.5 billion to $3.35 billion. While operating performance was strong across the board, the studio segment showed outstanding results, as operating income increased by more than 300%, from $118 million to $475 million in that division.

Adjusted earnings per share jumped 41%, to $1.11, during the period, comfortably beating Wall Street estimates of $0.96 per share for the quarter, and marking a new historical record for Disney.

Disney vs. Time Warner and Viacom
When comparing Disney to peers such as Time Warner and Viacom, the company is beating the competition by a considerable margin. Time Warner is delivering solid performance, but not growing as rapidly as Disney, while Viacom is materially lagging both Disney and Time Warner in terms of financial results.

Time Warner reported strong earnings for the first quarter of 2014; sales grew 9% versus the same quarter in the prior year to $7.5 billion, while adjusted operating income increased 7%, to $1.5 billion. Time Warner reported adjusted diluted earnings per share of $0.91 during the period, a healthy increase of 20% versus the same quarter in 2013.

Revenues in the Turner division grew 5% to $2.6 billion; HBO delivered a sales increase of 9% to $1.3 billion, and Warner Bros revenues increased by 14% to $3 billion during the quarter. The Lego Movie and 300: Rise of an Empire were the major growth drivers for Time Warner in the movie business during the quarter.

Viacom, on the other hand, is substantially lagging both Disney and Time Warner lately. The company announced a sales increase of only 1% during the quarter ended on March 31, to $3.2 billion, while adjusted earnings per share grew 13%, from $0.96 to $1.08.

Viacom delivered a 6% increase in revenues in the media networks segment, to $2.4 billion, on the back of higher affiliate fees and advertising revenues, but the company also announced a decline of 12% in filmed entertainment revenues, to $831 million, during the period due to lower carryover revenues from previous releases.

Wonderful growth prospects
Disney is a fairly unique company in the entertainment industry, as it has the ability to monetize its assets via multiple platforms over time: movies, shows, theme parks, merchandising, etc.

Success in one area generates growth opportunities in other segments, so big winners like Frozen bode remarkably well for the company's prospects in the years ahead.

Demand for Frozen merchandise remains "extremely high" according to management, and the movie's soundtrack is a booming hit. Disney is planning to take Frozen to Broadway, setting the stage for another big success considering the company's remarkable track record and experience in that area.

Management is quite optimistic regarding prospects for its Marvel launches as Captain America: The Winter Soldier is another huge success, and the company has a strong pipeline of Marvel content to be launched in the medium term. Disney also announced the cast of Star Wars Episode VI last week, and the company has ambitious plans for that franchise. Disney intends to make three Star Wars sagas in the coming years, in addition to several spinoffs from those movies.

Content creation is frying on all cylinders, and Disney has an unparalleled ability to profit from successful productions via multiple venues at the same time, so investors have valid reasons to expect sustained growth from the company during the coming years.

Foolish takeaway
Disney's performance in the last quarter was nothing short of spectacular, be it on a stand-alone basis or when compared against competitors such as Time Warner and Viacom. More important, the company is stronger than ever when it comes to creating widely successful content and building the foundations for long-term growth. The magic factory is running at full speed.

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