"Please stand clear of the doors," goes the recorded greeting for incoming monorail riders at Walt Disney Co.'s (NYSE:DIS) theme parks. That warning is followed immediately by the more lavish translation in Spanish: "Por favor mantengase alejado de las puertas."
Disney fans are probably familiar with the bilingual monorail notice, and it's advice that probably comes in handy in assessing the family-entertainment giant's fiscal first-quarter report. Hold steady: The ride is about to begin.
Disney's quarterly report after Tuesday's market close makes it clear that things are starting to move. The company beat Wall Street expectations on both ends of the income statement, sending the shares to new all-time highs in after-hours trading.
Revenue climbed 9% to $13.39 billion over the prior year's fiscal first quarter. The pros were expecting revenue to increase at just half that clip, given the headwinds facing Disney's studio and interactive divisions. Margins refreshingly widened during the period, with all five of segments posting upticks in operating income. Earnings climbed 19% to $2.2 billion, up 23% on a per-share basis, to hit $1.27. Analysts were holding out for a profit of only $1.07 a share, 4% ahead of the prior year.
Disney's blowout financials are impressive, and that's before touching on another gem in its report: Free cash flow soared 55% to $857 million for the quarter.
Let's go over the five divisions that make the House of Mouse tick.
- Media networks made up the only segment for which operating income failed to keep pace with top-line results, held back by escalating programming costs at ESPN. Revenue climbed 11%, matching the 11% upticks at both the cable and broadcasting operations. The segment's operating profit climbed only 3%, again held back by the high contractual obligations with pro sports leagues. This was the quarter's biggest contributor, accounting for 44% of Disney's revenue and 42% of its operating profit.
- Disney's theme parks remain as magnetic as ever. Revenue rose 9% as record attendance and higher-spending guests drove the top line higher. Theme parks are scalable in nature, given the high fixed costs of attractions, so it isn't a surprise to see operating income soar 20%.
- Studio entertainment took a 2% step back in revenue, but it could have been worse. Disney's results were being compared with the prior year's holiday quarter when Frozen and Marvel's Thor: The Dark World were blowing up at the multiplex. The big entry this time around was Disney's Big Hero 6, which sold half as many tickets as Frozen. The tough theatrical comps were partly offset by the availability of Guardians of the Galaxy, Frozen, and Maleficent on DVD and digital delivery. The welcome surprise here is that operating income soared 33% despite the top-line retreat.
- Consumer products saw revenue and operating profit rise 22% and 46%, respectively. One word -- Frozen -- is all you need to know about the strength there. The movie has been out since November 2013, but the franchise gained steam heading into the most recent holiday shopping season.
- Interactive was the other segment to post an uptick in operating profit despite a decline in revenue. That wasn't a surprise. Revenue had skyrocketed 38% during the prior year's holiday quarter on the success of its Skylanders-like Disney Infinity gaming platform that the company introduced in the summer of 2013.
Disney is hitting on nearly all cylinders at the moment, and the market's reward is more all-time highs.