Disney (NYSE:DIS) reported earnings for its fiscal first quarter after Monday's market close. Many observers seem to be predicting that the magic is back, but I've heard that song and dance before; I'll read through this release and judge for myself.

Total revenues increased 2% to $8.85 billion. Operating income went up a percentage point, coming in at $1.38 billion. Net income rose 7% to $734 million, or $0.37 per diluted share. There was a benefit of $44 million in after-tax monies ($0.02 per share) related to asset sales, and a $13 million net benefit ($0.01 per share) in the year-ago quarter (due to a favorable tax element that was offset by charges related to the sale of The Disney Store asset). Backing those out, the increase in net earnings becomes about 2.5%.

But these middling increases are not the brightest aspects of the report. In the year-ago quarter, Disney used up $191 million of free cash, as opposed to the $376 million that was generated this time around. The reversal of fortune was due to a sharp increase in cash from operations to $579 million. A better receivables schedule, less capital spending, and a reduction in film outlays trumped the accounts payable offset and other expenses.

Yet we still have a lopsided situation with Disney. Its ABC network asset continues to hold court, seeing an 87% expansion of operating income. Cable was weak this time around, seeing a 15% drop in profits, because of revenue deferrals at ESPN and marketing obligations at ABC Family. Even with The Chronicles of Narnia and Chicken Little doing well, shareholders will be disappointed to hear that the studio division saw a 60% drop in operating income because of a weaker sales scenario in home video. Consumer products brought in 17% more green this quarter, buoyed by its video game portfolio. And hey, can we have a hand for theme parks? That 50th-anniversary celebration scheme seems to be paying dividends, providing Disney with a 51% increase in income.

We know the big problem area: the studio segment. It needs some magic. It might get it with the upcoming Pirates of the Caribbean sequel and, of course, Cars. Iger needs to make sure that the home entertainment division reduces its offsetting disappointments. After all, look what those disappointments did to the spectacular performance of Narnia and Little.

The major news is not so much in this past quarter's results. What's important to shareholders is the acquisition of Pixar (NASDAQ:PIXR). Although I didn't feel a pressing need for the company to buy this asset -- I felt Disney could go it alone if need be -- I will call myself an optimist and hope that the integration adds a ton of value over the long term. And hey, having Steve Jobs on board has to count for something. Let's just hope that he and Iger have a convivial relationship going forward and that they stay on the same page.

With Pixar under the Mouse's umbrella, the dividend rising, the divestiture of some radio assets, and free cash flow on the rise, Disney's on the right track. Will the stock climb in a sustainable manner? That, my friends, is a good question .

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Pixar is a Motley Fool Stock Advisor recommendation.

Fool contributor Steven Mallas owns shares of Disney. The Fool has a disclosure policy .