2006 in Review: Disney

Well, "Save Disney" is long past and Bob Iger is the Chief Executive Mouseketeer, but that doesn't mean that the excitement is over for Motley Fool Stock Advisor selection Disney (NYSE:DIS). With tight competition coming in all areas -- from media powerhouses like Viacom (NYSE:VIA), Time Warner (NYSE:TWX), and CBS (NYSE:CBS) -- 2006 was no time for Disney to sit on its tail. But as high-quality content continues to wear the kingly crown, Disney is finding ways -- as Anne Sweeney, the President of Disney-ABC Television Group, put it -- to make their content not only "in-demand," but also "on-demand."

A review
The first calendar quarter (the company's second fiscal quarter) gave Disney a good start for 2006. While revenue crept up just 3%, EPS gained 19%, and free cash flow more than doubled. The strong results were largely due to 18% growth in the Media Networks division and 7% growth in the Parks and Resorts division. Both segments also saw profitability growing faster than revenue.

The second calendar quarter saw more strength from Iger's Muridae army, as the top line grew 12% and was accompanied by more magically expanding margins. In a year-over-year comparison, Disney's segments all played their part in the growth, with double-digit revenue growth in Studio Entertainment, Media Networks, and Parks and Resorts. Notably, operating income at the Parks and Resorts segment was up 26% versus revenue growth of 11%, showing that the Mouse's parks may be valuable after all.

The third calendar quarter closed the books on Disney's fiscal year, and not without a reason for shareholders to dust off those ears they abandoned during the late Eisner years. The fiscal fourth quarter witnessed total revenue up 14%, but it was overshadowed by growth in operating income of 85%, and net income and free cash flow that almost doubled. For the full fiscal year, revenue was up just 6%, but that was accompanied by 34% growth in operating income and 33% EPS growth. As in prior quarters, there was strength pretty much across the board from the company's four segments. For the full year, though, it was mainly Media Networks and Parks and Resorts carrying the day on the top line, while Studio Entertainment -- with lower costs due to fewer releases and a bona fide smash hit in Pirates of the Carribean: Dead Man's Chest -- gave a big jolt to profitability.

After almost a decade of underperformance (that likely made most Disney shareholders want to tear out their hair), the company appears to be showing some life again. In the past year it shed some extremities, including its ownership in the E! Television network and US Weekly, but it also went out on a limb with the expensive purchase of Steve Jobs' Pixar Animation Studio. Major film successes helped financial performance in a big way, with Pirates and Pixar's Cars both rocking the box office. The market certainly didn't take any of this for granted, though, and the stock is up a cool 42% since the beginning of the year.

The future
Going forward, Disney will be counting on strong performance from the 2007 installment of Pirates (Pirates of the Caribbean: At World's End) -- as well as future films from Pixar and the 2008 follow-up to the first Chronicles of Narnia movie. What 2006 has shown, though, is that the company is tightening screws all over the place and future results should have four strong pillars holding them up.

Also notable is the company's continued push online. Anne Sweeney talked about the idea of Disney turning the threat of online piracy into an opportunity for the company to actually grow viewership by allowing their busy audience to tune in at their convenience through ABC.com. If the trends they've seen so far persist, they could see further growth in already strong series like Lost, Desperate Housewives, and Grey's Anatomy.

But where do investors really stand? Well, our Motley Fool CAPS community members have something to say about that. Just take a look at how the overall sentiment stacks up:

While the majority of CAPS players see Disney as a good pick, the ratio of bulls only qualifies it as a lukewarm selection in the overall CAPS universe. When it comes to speaking out, though, Disney bulls were far more vocal. Though some bears quipped that they don't believe Disney can keep up the growth to support the stock's current price, CAPS player Michael2k spelled out where he sees growth coming from:

"Disney has embraced digital distribution after being a latecomer in the DVD market. They are returning to their roots after acquiring Pixar. They have another Pirates movie, another Pixar film, another animated Disney film, and a new Nintendo Wii game development studio in their roster."

It's hard to argue with Disney's performance since Iger took over -- at the very least, the lack of distraction at the top is likely paying off. It certainly seems like Mickey is looking mighty again, but as the stock's forward P/E pushes higher, investors are beginning to wonder: just how good is this mouse?

• Fool on the Street: Disney Winning All Three Battles
• Fool on the Street: Disney
• Fool on the Street: Disney Goes Digital

Check out the other companies featured in "The Motley Fool's 2006 in Review and 2007 Preview" special.

Do you like Disney and want more fine cheeses to pair it with? Check out The Motley Fool Stock Advisornewsletter, where David and Tom Gardner offer a whole mouse-ear full of great stocks. Time Warner and Disney are both recommendations of the newsletter.

Fool contributor Matt Koppenheffer promises that no mice were harmed in the writing of this piece. He does not own shares of any of the other companies mentioned. The Fool's disclosure policy is always working hard. Why? Because we like you.