It's showtime for new Disney
For the quarter, net profits fell -- predictably -- by 27% on a modest 3% uptick in revenues. Back out both the impact of accounting changes and the expensing of stock options, and you'll find earnings per share still took a dip, but only to the tune of an 8% decline.
No, Disney isn't broken. Entertainment giants tend to get these quarterly fluctuations. Over the course of fiscal 2005, adjusted profits rose by 18% to $1.32 a share on a 4% top-line spurt. Free cash flow for the year fell from $2.9 billion to $2.4 billion, but this was also a year of major theme park expansion, with the opening of Hong Kong Disneyland.
However, it was still a year of extremes for Disney. Media networks and Disney's theme-park divisions posted double-digit gains in revenues, while consumer products and the company's studio business suffered double-digit declines.
Disney is upbeat about its new fiscal year. It may not start out that way, because the company is expecting improvements in 2006 to come in mostly in the second half of the fiscal year. That's when likely summer blockbusters Cars and Pirates of the Caribbean: Dead Man's Chest will hit the big screen, along with the DVD release of Chicken Little and Chronicles of Narnia.
Success with all four features -- and Chicken Little is off to a great start -- would leave Disney in a rosy position. That's because ABC and ESPN continue to get better, and Disney's theme parks are as popular as ever, with improving margins.
With Children's Place
Ultimately, if you're a Disney investor -- and I am -- what's really impressive about the quarter isn't so much the company's actual report, but rather Iger's diplomatic prowess during last night's call.
Iger went out of his way to butter up Pixar
Eisner's reign was similar to that of Terrell Owens in Philadelphia. He was a talented leader with mad skills, especially early in his tenure, but ultimately proved to be too self-absorbed for his company's own good. Iger? He's a team player. This doesn't mean that Disney's new signal-caller is about to start making soup commercials. It does mean, though, that burned bridges are being extinguished and repaired.
I walked away feeling as confident as ever that Disney and Pixar will patch things up. No, I don't see Pixar relinquishing anything less than 100% of its new film projects. However, it's becoming more and more likely that Disney will be Pixar's film distributor in the future, and that the two will team up to produce sequels to previous Pixar-Disney classics, starting with Toy Story 3.
That's the kind of visibility and cooperative spirit that Disney has been sorely lacking in recent years.
Long live Iger.
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Longtime Fool contributor Rick Munarriz is a huge fan of Disney and likes what he's seen so far in new CEO Bob Iger. He owns shares of Disney and Pixar. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
