A Pirate's Life for Disney

Swashbucklers and seaworthy ships help guided Disney (NYSE: DIS  ) to market-thumping quarterly results.

Avast, ye scurvy sums.

Revenue climbed 7% to $10.7 billion, fueled in part by the success of the fourth theatrical installment of its Pirates of the Caribbean movie series and the third vessel that was added to its fleet of family-friendly cruise ships. Earnings climbed 15% to $0.77 a share, or up 16% to $0.78 a share after backing out one-time restructuring and impairment items.

Analysts were only expecting a profit of $0.73 a share on $10.5 billion in revenue.

Obviously this is good news, but investors may not realize how welcome this pro-busting report was. Disney routinely trounced Wall Street's profit targets during the first few years of CEO Bob Iger's tenure, but the family entertainment giant had come up short in two of three previous periods.

Sources of strengths and weaknesses may surprise you.

Let's start at the box office. Cars 2, Thor, and Pirates of the Caribbean: On Stranger Tides fared well at the corner multiplex, but studio revenue was essentially flat with operating profits falling sharply. How can this be? Well, it cost a lot of money to get the star-studded pirate flick to the silver screen. This season's slate also had to be pitted against Toy Story 3 and Iron Man 2 last year. As strong as this year's releases were on an absolute basis, we're looking at a decline in worldwide theatrical revenue on a relative basis.

On the upside, Disney's theme parks and resorts posted a 12% spike in revenue. We've seen regional amusement park operators Six Flags (NYSE: SIX  ) and Cedar Fair (NYSE: FUN  ) muster only single-digit top-line growth during the same three months, so this is impressive. How did Disney accomplish this feat, especially at a time when its Japanese parks were closed early in the quarter after the March earthquake? Well, while there were strong gains at its parks outside of France and Japan, the addition of Disney Dream to the leisure leader's cruise line greatly expanded its revenue-generating prowess for the non-landlubbers.

Disney's media networks were steady, with a 7% increase in its reliable cable channels lifting ABC out of a 1% decline. Operating profits did climb at a double-digit clip at both its cable and broadcasting divisions, though. Viacom (NYSE: VIA  ) and CBS (NYSE: CBS  ) fared better on both fronts during their quarterly reports last week, but Disney can't beat everybody.

Disney's consumer products and interactive media subsidiaries posted the largest revenue percentage gains, though Disney's gaming arm continues to lose problematic sums of money.

All in all, this was a throwback report. It was reminiscent of Iger's earlier quarters at the helm. It wasn't flashy, but it was more than enough to humble Wall Street.

Did you hear that ABC is canning Desperate Housewives after this season? Stay on top of the latest Disney news -- above and beyond the gossipy Wisteria Lane chatter -- by adding Walt Disney to My Watchlist.

Motley Fool newsletter services have recommended buying 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.  

Longtime Fool contributor Rick Munarriz can usually be found at Walt Disney World. Not today, though. He does own shares in Disney. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (6) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 10, 2011, at 9:54 AM, doug007 wrote:

    And yet DIS is down over 12% right now.

    Go figure.

  • Report this Comment On August 10, 2011, at 10:37 AM, Hairy0524 wrote:

    Reviewing some analysts comments, .06 worth of their earnings came off of ESPN advertising that was a surprising upside. Apparently the analysts didn't like that and the majority cut their outlook. I've had Disney on my watch list and I think this recent drop is hogwash and creates a great buying opportunity. With the market mood, the stock will more than likely drop further...but if you're on this website, you are more than likely not interested in market timing.

    I'm sure one of the Fool anyalsts can chime in with some more insight, but I am curious how it's feasible to simply ignore real earnings and revenue generated by companies just because you don't like the source of income. I can understand one time accounting occurences of a big loss or big gain...but to discount earnings from ESPN advertising seems odd to me. A little help understanding???

  • Report this Comment On August 10, 2011, at 1:14 PM, gordian123 wrote:

    You're right, punishing DIS for a successful quarter makes no sense. Just like a lot of other well-run companies right now this one seems like a great opportunity.

    Disney World should net them some earnings over the summer, Pixar has been invaluable and ESPN has been a cash cow for advertising and for progressing the new digital distribution methods. It also is one of the most expensive channels for cable distributors. Can anyone imagine a bar without ESPN running in the background?

  • Report this Comment On August 10, 2011, at 2:04 PM, esxokm wrote:

    Remember that the market is forward-looking. The sell-off in DIS does make some sense...if the consumer returns to an ultra-frugal mindset, then all stock valuations will have to be reconsidered.

  • Report this Comment On August 10, 2011, at 3:12 PM, Hairy0524 wrote:

    Esx, that is a good point regarding macro conditions and the likely tightening of the consumer's belt. However, looking back to 2008 when the world was coming to an end, consumers still spent money on entertainment...specifically "movie nights" at the theatre and at home with the family. In addition, sports is a great "escape" from the perils of the real world. Disney sets up nicely for this as ESPN and their film efforts can bridge the gap to when the normal/good times return...and they will return once again. Not to mention that Disney's brand is one of the strongest in the world.

    I'm not disagreeing with you that evaluations must be reconsiders knowing that a possible or current recession is likely. I just believe that presents a great opportunity to own an American icon with solid cash flow and very valuable brand.

  • Report this Comment On August 10, 2011, at 5:07 PM, esxokm wrote:

    Hairy0524:

    Indeed, now -- or some time a little further into the future -- is probably a good time to buy. I actually sold some DIS the other day to protect profits and plan to get in again when the price goes lower. Honestly, I believe we go lower from here (but I hope I am wrong).

    I have purchased so far GE on the dip, for what's it worth.

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