Walt Disney Company (The) (DIS)

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Walt Disney (DIS)

Q1 2011 Earnings Call

February 08, 2011 5:00 pm ET

Executives

James Rasulo - Chief Financial Officer and Senior Executive Vice President

Robert Iger - Chief Executive Officer, President, Director and Member of Executive Committee

Lowell Singer - Senior Vice President of Investor Relations

Analysts

Jessica Cohen - BofA Merrill Lynch

Spencer Wang - Crédit Suisse AG

Anthony DiClemente - Barclays Capital

Richard Greenfield - BTIG, LLC

Michael Nathanson - Sanford Bernstein

Benjamin Swinburne - Morgan Stanley

Alan Gould - Evercore Partners Inc.

David Miller - Caris & Company

James Mitchell - Goldman Sachs Group Inc.

John Janedis - UBS Investment Bank

Douglas Mitchelson - Deutsche Bank AG

Tuna Amobi - S&P Equity Research

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the first quarter 2011 Walt Disney Earnings Conference Call. My name is Kendall, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Lowell Singer, Senior Vice President of Investor Relations. Please proceed.

Lowell Singer

Thanks, Kendall. Good afternoon, everyone, and welcome to the Walt Disney Company's First Quarter 2011 Earnings Call. Our press release was issued almost an hour ago and it's available on our website at www.disney.com/investors. Today's call is also being webcast, and the webcast will also be available on our website. After the call, a replay and transcript will be there as well.

Joining me in Burbank for today's call are Bob Iger, Disney's President and Chief Executive Officer; and Jay Rasulo, Senior Executive Vice President and Chief Financial Officer. Bob's going to lead off, followed by Jay, and then we will of course be happy to take some of your questions.

So with that, let me turn the call over to Bob, and we'll get started.

Robert Iger

Thank you, Lowell, and good afternoon. I'm pleased to report we had an excellent first quarter, driven by strong creative content and our unique ability to leverage great entertainment across the many platforms, businesses and markets in which we operate. We also benefited from growth in advertising at our Media Networks, and improved consumer spending at our Parks and Consumer Products businesses. Net income was up 54% to $1.3 billion on a 10% revenue increase. EPS for the quarter, adjusting for comparability, grew 45% to $0.68.

Next week we're holding an investor conference so today I'm going to keep my remarks brief. Our performance again shows the value of our relentless focus on three core strategic priorities: Creating great entertainment, using new technology to enhance the quality and reach of that entertainment and growing our businesses in promising international markets. Nothing epitomizes our commitment to quality, creativity and future growth like the recently christened Disney cruise ship, the Disney Dream. The Dream demonstrates how we successfully build on our legacy of great storytelling, technological innovation and first rate service to create a truly amazing guest experience as only we can. The impact on bookings for the entire fleet has been tremendous.

Animation has always been at the heart of Disney, and this quarter showed how incredibly beneficial strong animated films can be for the company. Tangled, the crowd-pleasing fairytale adventure, is close to $500 million in global box office, with Japan yet to open. And has added Rapunzel to our popular court of Disney Princesses.

Toy Story 3, already the number one animated movie of all time at the box office, did very well in its home video release, was a key part of the holiday success of our Consumer Products business, and I'm happy to say has been nominated for five Oscars, including Best Picture.

We also are extremely pleased with the performance of our Parks and Resorts. Despite difficult weather conditions in the U.S. and Europe, we enjoyed increases in attendance and spending at our U.S. parks with new attractions coming online at our parks, our new Hawaiian resort opening in August, and the expanded Disney Cruise Line, there will be multiple additional reasons for families to enjoy a great Disney vacation.

Our Media Networks, led by ESPN, once again had a very solid quarter. The Bowl Championship Series on ESPN was a big success in its first year, with the Auburn/Oregon final being the most watched telecast in cable television history.

Monday Night Football had its highest rated and most viewed season since 2006 when it moved from ABC to ESPN. Disney Channel, with its expanded portfolio of original programming, had its best ever first quarter in terms of total viewership. And ABC, and particularly its own stations, benefited substantially from the continued improvement in advertising rates.

In sum, we are very pleased with how we've started off the new fiscal year. We've got a strong creative strategy focused on building our brands and franchises, a talented team and a consistent focus on growing our businesses in rapidly changing markets.

And with that, I'll turn things over to Jay.

James Rasulo

Thanks, Bob, and good afternoon, everyone. We delivered strong results in our first quarter, with double-digit growth in overall operating income and margin improvement across all of our businesses.

Before we turn to your questions, I'd like to highlight the key drivers of our Q1 performance and discuss some of the trends and comparison issues that will influence our results for Q2 and the remainder of the year.

Profits at the Media Networks were up 47%, led by strong growth in advertising and affiliate revenue at cable networks. Ad revenue for ESPN came in 34% above prior year, driven in part by strong demand for NFL programming on the back of another year of extremely strong NFL ratings. In the quarter, ESPN added two BCS games, the Rose and Fiesta Bowls. After adjusting for these two BCS games, we estimate that ESPN's ad revenue was up 27%. Thus far in Q2, ESPN's ad sales are pacing up double digits versus prior year.

Read the rest of this transcript for free on seekingalpha.com