One of the performance awards should be handed to the theme parks and resorts segment. Net sales here saw a double-digit climb of 26% to $2.1 billion. Segment operating income went up an anemic 3% because of the consolidation impact of EuroDisney and Hong Kong Disneyland. If we were to disregard that, we would actually see lesser revenue growth (equal to 7%) but higher operating income growth (equal to 26%). No matter how you slice it, the parks did a good job; the company indicates that Walt Disney World was the main driver, seeing higher consumer buying during stays in addition to the better occupancy rates.
Let's move on to other operating segments. Checking in with the studio division, we see a 65% increase in operating income ($253 million) on a 5% appreciation in the revenue base ($2.3 billion), good for another award. Lower write-offs, as well as a decrease in distribution expenses, helped to bring in the coin. Oh, and one certain little film on DVD has to be mentioned as well: The Incredibles. What's good for Pixar
Overall, the segments did a commendable job at bringing in some value. However, cash from operations was down on a six-month basis and capital investment was up, so free cash came in at $376 million versus $2.0 billion in the similar time frame a year ago. So far this year, Disney has invested more than $1 billion more in working capital than the previous year. And here we note that The Incredibles can taketh as well as it can giveth, since its DVD release contributed heavily to the $667 million increase in accounts receivable. But it takes money to make money, and no business can survive without using capital. It's how you use it that matters.
Going forward, I like Disney's prospects for the rest of the year. With projects such as Chicken Little and The Chronicles Of Narnia: The Lion, the Witch, and the Wardrobe sure to juice up the consumer-products division, as well as an important celebratory promotion centered on the parks, I'm hoping that earnings will continue to climb, expenses will be cut, and free cash flow will be back to acceptable levels. For a company like Disney, the risk is always there that the public will not respond to the products it has in the pipeline; ABC's fall season could go south, the new movies could bomb, and merchandise might sit on the shelves gathering dust. It's got a series of strong brands and characters under its aegis, so it's up to the new Head Mouse to ensure that all the engines of value creation are revved up and ready to go. The gauntlet has been dropped, Bob.
Recent articles on The Walt Disney Company:
Post your thoughts on our Disney discussion board.