Please ensure Javascript is enabled for purposes of website accessibility

Why Walt Disney Stock Popped More Than 5% This Morning

By Rich Smith - Nov 8, 2019 at 11:28AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Earnings beat estimates handily, but where'd all Disney's cash disappear to?

What happened

Wrapping up its fiscal 2019, Walt Disney (DIS 2.28%) reported its Q4 earnings last night, and the stock is up 4% as of 10:35 a.m. EST in response -- after shooting up more than 5% in trading earlier today.  

Disney crushed earnings estimates, reporting pro forma profits of $1.07 per share versus Wall Street's expected $0.95, and even eking out a small win on sales, with $19.1 billion in revenue trumping expectations for $19.04 billion.  

Woman at park wearing Minnie Mouse ears

Image source: Getty Images.

So what

CEO Robert Iger called the results "solid," despite the fact that actual GAAP profits were only $0.43 per share, down 72% year over year. (And pro forma results declined 28% year over year.)

Full-year earnings likewise slumped, falling 25% to $6.27 per share, but quarterly sales were up 34% and full-year sales grew 17% to $69.6 billion.

Quarter over quarter, the company's strongest sales gains came in the direct-to-consumer and international division, where revenue more than doubled, followed by entertainment (up 52%) and media networks (up 22%). Parks was the weakest performer, with sales rising only 8% -- but each and every division saw its revenue grow.

Now what

Free cash flow, however, declined year over year -- crashing an astounding 83% to just $1.7 billion (as calculated by S&P Global Market Intelligence; Disney's own calculation gives an even more depressing tally of $1.1 billion).

To me, this is the biggest concern about investing in Disney right now. If the stock's 22.6 price-to-earnings ratio isn't exactly cheap, but is at least within the realm of reality, its price-to-free-cash-flow ratio of more than 146 makes it look positively radioactive. Absent a big improvement in cash generation after Disney+ rolls out, this stock looks far too hot to handle.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Walt Disney Company Stock Quote
The Walt Disney Company
$105.61 (2.28%) $2.35

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.