The Walt Disney Company (DIS) continues with its fabulous run as the movie business enjoys unprecedented success. After record first and second quarters of fiscal 2014, the company’s third-quarter fiscal 2014 earnings were the highest in its history. The company’s earnings came in at $1.28 per share, way ahead of the Zacks Consensus Estimate of $1.17 while surging 24% year over year.
Revenues came in at $12,466 million, up 8% year over year. Moreover, it surpassed the Zacks Consensus Estimate of $12,162 million. Total segment operating income increased nearly 15% to $3,857 million, based on strong performance across all divisions, particularly Studio Entertainment and Interactive segments.
Segment Details
Media Networks revenues increased 3% year over year to $5,511 million attributable to 1% rise in Cable Networks revenues to $3,942 million and 7% rise in Broadcasting revenues to $1,569 million during the quarter.
However, the segment’s operating income remained almost flat at $2,296 million owing to a decrease of 7% in Cable Networks operating income to $1,942 million run down by a 66% rise in Broadcasting operating income to $354 million.
Cable Networks operating income declined due to higher programming costs at ESPN offsetting the increases at ABC network. Broadcasting operating income grew owing to increased affiliate revenues and higher program sales.
Parks and Resorts revenues rose 8% to $3,980 million, while the segment’s operating income increased 23% to $848 million. Shift in Easter timing benefited Park and Resorts performance greatly. Domestic operations were robust but Disneyland Paris witnessed reduced footfall.
In the quarter, per capita spending in the Parks grew 8% on increased ticket prices and food and beverage spending. Management stated that so far in the fourth quarter of fiscal 2014, domestic resort reservations have risen 5% year over year, while booking rates are up 3%.
Studio Entertainment revenues rose 14% to $1,807 million, while operating income of $411 million registered a substantial year-over-year gain. The stupendous success of Frozen followed by Captain America: The Winter Soldier and Maleficent led to higher domestic home entertainment revenues and international theatrical results.
Recently released movie, Guardians of the Galaxy has made a stellar debut at the box office amassing over $94 million in its opening weekend. The success once again proves the value of Marvel Entertainment. Disney acquired Marvel studios in 2009. Ever since, Marvel has delivered a string of blockbuster hits for the company.
We believe that the studio will continue with its success story unabated as it boasts of an impressive line up of new movies. Among these are two of next year’s highly anticipated movies namely Avengers: Age of Ultron and Ant-Man.
Along with Marvel movies, Disney also has a couple of animated movies from Pixar lined up for 2015. Moreover, Star Wars Episode VII, Disney’s most ambitious project in recent times, is slated to release on Dec 18, 2015. The segment is poised for delivering record revenues in the upcoming quarters.
Consumer Products revenues increased 16% to $902 million, while segment operating income rose 25% to $273 million, owing to gains from Merchandise Licensing and the Retail business.
Interactive revenues for the quarter rose 45% to $266 million, while operating profit was $29 million, up from a loss of 58 million in the prior-year quarter. The increment was on the back of rise in console game sales (especially Disney Infinity, Tsum Tsum and Frozen Free Fall), lower development costs and the continuously growing Japan mobile business.
Other Financial Details
During the first nine months of 2014, Disney generated free cash flow of $4,427 million, down 9.8% year over year. The company ended the quarter with cash and cash equivalents of $4,090 million, borrowings of $12,920 million and shareholder’s equity of $45,520 million, excluding non-controlling interest of $3,092 million.
Though cash flow generation fell year over year, it is strong enough to position the company favorably to enhance shareholder value through share repurchases. In the reported quarter, Disney bought back 22.8 million shares for approximately $1.8 billion. Year to date, it repurchased 74.3 million shares worth approximately $5.6 billion.
Needless to say, Disney is firing on all cylinders and is expected to continue with its remarkable achievement in the upcoming quarters.
Currently, Disney carries a Zacks Rank #3 (Hold). Another media stock worth investment includes Pearson plc (PSO), which carries a Zacks Rank #2 (Buy).
This week will also see two other media giants reporting quarterly results, namely Twenty-First Century Fox, Inc. (FOXA) on Aug 6 and CBS Corp. (CBS) on Aug 7.
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