Strong performance of the Media Networks and Parks and Resorts divisions facilitated The Walt Disney Company (DIS) to deliver better-than-expected third-quarter 2011 results that outshined the Zacks expectations.
The quarterly earnings of 78 cents a share came ahead of the Zacks Consensus Estimate of 73 cents and jumped 16% from 67 cents earned in the prior-year quarter. However, on a reported basis, including one-time items, quarterly earnings came in at 77 cents per share.
Total revenue in the quarter increased 7% to $10,675 million from the year-ago quarter and came ahead of the Zacks Consensus Revenue Estimate of $10,451 million. Total segment operating income increased 8% to $2,731 million.
Shareholder’s Delight
Sequentially, Disney has made a positive comeback in the reported quarter, beating performance in the previous quarter. The company remains well positioned to drive revenue growth in the coming quarters through its strategic initiatives.
In a move to boost the performance of ESPN, the company signed 2 new agreements. ESPN was the key driver of revenues at the Media Networks division during the reported quarter. Disney gained a 12-year deal for multi-platform rights for a wide range of Pac-12 conference sports and also entered into a 12-year deal to be the exclusive U.S. broadcaster of Wimbledon.
Such moves not only fortify its position but also expand its coverage area while creating long-term opportunities.
Disney is in talks for cash retransmission payments for owned television stations and license fees from affiliated stations. Disney notified that its owned stations have entered into agreements with quite a few multi-channel distributors and has completed license agreements with non-owned affiliates.
Disney reported its quarterly results amid the financial turmoil following the Standard & Poor's first-ever downgrade of U.S. debt. However, the company did not change its strategies and remained focused in deploying its capital toward expanding its Parks and Resorts business and in turn, enhancing its markets and creating long-term growth opportunities.
Further, Disney Store, the retail merchandising arm of the company, is opening interactive concept stores in more than 40 locations in 2011, thus expanding its reach to new markets.
Backed by the successful launch of the innovative design store in 2010 coupled with the huge demand from retail property owners, Disney Store is optimistic about its interactive store and plans to open 60 new concept stores in 16 major markets in North America across 8 countries by the end of 2011.
Better-than-expected results enable the company to enhance shareholders value through share repurchases and dividend payout. The company notably augmented its rate of share repurchases during the quarter and bought back 35.1 million shares for approximately $1.4 billion.
Collectively, the consequences of the above amplified the reported quarter’s earnings per share.
Moving to the Segments
Media Networks revenue rose 5% year over year to $4,949 million due to revenue increase across Cable Networks (up 7%), partly offset by a decline in Broadcasting revenue (down 1%). Segment operating income rose 11% to $2,094 million.
Cable Networks’ operating income jumped 10% to $1,844 million driven by growth across ESPN and the Disney Channels. Operating income at the Broadcasting division soared 20% to $250 million, reflecting rise in advertising revenue at the ABC Television Network coupled with the fall in programming and production costs.
Parks and Resorts revenue rose 12% to $3,170 million. Segment operating income increased 9% to $519 million, reflecting higher guest spending at domestic parks and higher passenger cruise days, partly offset by lower revenue from Tokyo Disney Resort and Disneyland Paris.
Studio Entertainment revenue inched down 1% to $1,620 million compared with the year-ago quarter, while operating income plunged 60% to $49 million. The reduction reflects poor domestic and worldwide theatrical performance.
Consumer Products revenue rose 13% to $685 million and segment operating income jumped 32% to $155 million. The growth reflected increased licensing revenue from Cars merchandise and higher revenue from Marvel properties.
Interactive Media revenue for the quarter surged 27% to $251 million, but posted an operating loss of $86 million compared with an operating loss of $65 million in the prior-year quarter. The loss reflected the impact of acquisition accounting resulting from Playdom buyout.
Other Financial Details
During the quarter, Disney generated free cash flows of $1,106 million. The company ended the quarter with cash and cash equivalents of $3,519 million, net borrowings of $9,719 million and shareholders’ equity of $38,946 million, excluding a non-controlling interest of $1,976 million.
Walt Disney is one of the world's leading diversified entertainment companies. Moreover, the company commands a formidable portfolio of globally recognized brands, primarily its namesake brand Walt Disney, followed by ABC, ESPN and Marvel Entertainment. These brands offer a strong competitive edge to the company and bolster its well-established position in the market against major players like News Corporation (NWSA) and Time Warner Inc. (TWX).
Currently, we maintain a long-term Neutral recommendation on the stock. Moreover, Disney’s shares hold a Zacks #3 Rank, which translates into a short-term Hold rating.
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