Shares of Walt Disney (NYSE:DIS) passed $90 recently and remain near a 52-week high thanks to a strong box office performance for Guardians of the Galaxy. The latest Marvel movie went into the weekend having earned just more than $428 million worldwide.
What does the House of Mouse have planned, and how might investors following Disney think about the business? Here's what management had to say in the most recent earnings conference call.
Disney's franchise strategy is working
Marvel movies like Guardians have been a boon for the Studio Entertainment segment, which saw operating income double year over year in fiscal Q3. That, in turn, helped push the whole business to new highs. AS CEO Bob Iger put it during the call:
We delivered the highest quarter in the history of The Walt Disney Company with adjusted EPS of $1.28, and we've generated greater EPS in the first three quarters of fiscal 2014 than we have in any previous full fiscal year. As evidenced by these results, we remain committed to building strong brands and growing franchises, a strategy that is creating value across the company.
No franchise is performing better than Frozen. The adventures of Anna and Elsa drove higher profits per unit at Disney's Studio Entertainment segment, as well as an increase in unit sales.
Retailers love Mickey and his pals
Disney is well-known as the world's biggest licensor of franchised brands. Indeed, the company's imprints were responsible for nearly $41 billion in retail sales last year, according to rankings compiled by License Global magazine. Investors should expect further growth in 2014. Again, here's Iger:
Disney Consumer Products just delivered its fourth consecutive quarter of double-digit growth in both revenue and operating income. And we have multiple franchises that have already generated more than $1 billion each in retail sales so far this year.
And how does that impact the Consumer Products group? Chief Financial Officer James Rasulo added context:
Disney Stores continued to be a positive story, with double-digit growth in comp store sales in North America, Europe and Japan. Growth in licensing was driven by the performance of Frozen, Disney Channel, Spider-Man and Planes properties, partially offset by lower revenues for Monsters [University]. On a comparable basis, earned licensing revenue in the third quarter was up an impressive 13% versus last year, and that's following 8% growth in earned revenues in Q2.
Theme parks are getting more tech-savvy, and Star Wars fans also have more to look forward to
Usually, it's new rides that deliver higher traffic and profits at Disney theme parks. In Q3, technology played a role. Here's Iger once more:
At Walt Disney World, this was the first full quarter in which MyMagic+ was available to all guests. About half of the guests now use MagicBands, and 90% of them rate the experience as excellent to very good. We're very pleased with the growing popularity of MyMagic+ and expect it to contribute to Park's earnings growth starting in the fourth quarter. ... We're also developing ideas and designs for a far greater Star Wars presence in our parks. We expect to provide details about this sometime next year.
Overall, Parks and Resorts revenue grew 8% while operating income improved a seasonally adjusted 17%. Expect accelerating growth once Disney makes good on Iger's promise for a more immersive Star Wars experience.
The World Cup was huge, but also cost a lot to cover
ESPN has been driving growth for years. This time was no different as Media Networks revenue improved on an expanded slate of sports programming. Again, here's Iger:
ESPN delivered the most watched World Cup ever on English-language TV here in the U.S. And with almost 44 million hours of live viewing on WatchESPN, this year's World Cup was the most streamed sporting event in history ... In the month of June alone, an astounding 80 million people connected to ESPN via computers and mobile devices to keep up with the World Cup and other sporting events.
Unfortunately, as Rasulo explains, sports contracts are expensive. Winning the World Cup didn't add to operating profit in fiscal Q3:
Higher programming and production costs were driven by increases for Major League Baseball, due to the first year of our new contract, and the World Cup. These higher costs were partially offset by the absence of both ESPN UK rights and production costs for the global X Games.
Digital alternatives are keeping advertisers from going "all-in" on broadcast TV
Unlike his peers at Twenty-First Century Fox (NASDAQ:FOXA), Iger acknowledged that online video, ad-supported streaming, and related on-demand options appears to be gaining traction with ad buyers -- at the expense of broadcasters:
...You're definitely seeing more compelling growth in advertising spending on new media platforms, digital platforms, than you are on the traditional. I don't think, though, that it's matched dollar for dollar in the sense that I don't think all the money that's flowed away from broadcast in the upfront necessarily flowed directly into new digital platforms, even though I believe that these platforms have siphoned off some money from the traditional broadcasters. I think some of the money just wasn't expressed because advertisers are choosing to essentially commit to spending much closer to the time that the spots actually run.
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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 Apple, Google (A and C class), Netflix, and 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.
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