Disney Earnings: Marvel-ous

Double-digit operating income gains in parks and resorts, studio entertainment, and consumer products lead Disney earnings to a new high in fiscal Q3.

Aug 6, 2014 at 3:49PM

Disney Earnings Captain America

Guardians of the Galaxy may be making all the headlines now, but in the company's fiscal third quarter, Captain America was Disney's superhero. Image source: Marvel Studios.

Superheroes led Walt Disney (NYSE:DIS) to a new earnings record in the company's fiscal third quarter. Specifically, Disney reported $1.28 a share in profits on $12.47 billion in revenue. Analysts were expecting $1.17 a share and $12.16 billion, respectively, according to Yahoo! Finance.

"This quarter we delivered the highest [earnings per share] in the company's history, and we've now generated greater EPS in the first three quarters of FY 2014 than we have in any previous full fiscal year. We're extremely pleased with these results and we are also thrilled with the spectacular performance of Guardians of the Galaxy, which holds great promise as a new franchise for our company and once again reinforces the tremendous value of Marvel," CEO Bob Iger said in a press release.

Guardians of the Galaxy set a U.S. box office record for August, earning $94.3 million in its opening weekend. The film had earned $172.4 million worldwide as of this writing and appears well on its way to making good on my forecast of better than $500 million in grosses. As character-driven companies go, none are performing as well as Disney right now.

Mighty Mouse
Guardians didn't contribute to fiscal third-quarter results. Instead, Captain America: The Winter Soldier led the way at the box office, earning $713.6 million worldwide, according to Box Office Mojo. The win reflects Disney's growing reliance on acquired brands, as Marvel powered gains in both the consumer goods and studio entertainment segments, two of Disney's fastest-growing businesses in the quarter:

Segment
Q3 Revenue
YOY % change
Q3 Operating Income (loss)
YOY % change

Media networks

$5,511 million

3%

$2,296 million

0%

Parks and resorts

$3,980 million

8%

$848 million

23%

Studio entertainment

$1,807 million

14%

$411 million

104.5%

Consumer products

$902 million

16%

$273 million

25%

Interactive

$266 million

45%

$29 million

Not material

TOTALS

$12,466 million

8%

$3,857 million

15%

Source: Disney press release.

And yet the story of Disney's magical third quarter doesn't begin and end with Marvel. From Frozen to the World Cup, the House of Mouse enjoyed wins across most of its business segments:

  • Media networks: A huge 66% increase in broadcast operating income offset a 7% decline at Disney's cable operations, as ESPN struggled with higher programming and production costs. Of note: Disney singled out Marvel's Agents of S.H.I.E.L.D. for helping to drive higher broadcast revenue.

  • Parks and resorts: Higher ticket prices and attendance helped power domestic gains, though Disneyland Paris continues to be a weak spot. A favorable shift in timing of the Easter holiday was also a factor, Disney said. Investments in the MyMagic+ system for automating and enhancing guest experiences also appear to be paying off. In a call with analysts, Iger said that half of Walt Disney World guests now use software-driven MagicBands for accessing the park and rides, and 90% of those said they rate the experience as excellent or very good.

  • Studio entertainment: While Captain America: The Winter Soldier set a new April box office record, Disney also got big wins from Maleficent and the DVD and Blu-ray rollout for Frozen, which has generated more than $242.5 million in home video sales since reaching shelves on March 18, The-Numbers.com reported.

  • Consumer products: Improvements in comparable-store sales at its retail locations helped drive results, but the real story was in licensing. Disney cited merchandise sales based on Frozen, Planes, and Spider-Man as contributing to growth. Sony released The Amazing Spider-Man 2 on May 2.

  • Interactive: This was the company's fastest-growing segment, thanks to the ongoing success of the Disney Infinity toy-based adventure game. A new version -- Infinity 2.0 -- will add Marvel characters when it debuts next month.

Foolish takeaway
In some ways, Disney is about as diverse a business as you'll find. Filmmakers mix with ship captains, cartoonists, and licensing executives. What unites them all is a focus on characters. Between its own creations and those of Lucasfilm and Marvel, Disney owns tens of thousands we've yet to see from the company.

Really, that's the most interesting part of this business story. Disney is winning not because it already has the best brands, but because it has hired the talent to take unknown brands like Frozen's Anna and Elsa or The Guardians of the Galaxy and give them mass-market appeal. That they've also generated billions in revenue and profit is a welcome bonus.

Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Walt Disney at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends and owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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