Disney's Q1 Earnings Beat on Media, Consumer Products - Analyst Blog

The Walt Disney Company ( DIS ) reported spectacular first-quarter fiscal 2015 results, wherein adjusted earnings per share of $1.27 were miles ahead of both the Zacks Consensus Estimate of $1.08 and the prior-year quarter adjusted figure of $1.04 per share. Disney's shares were up 2.3% in the extended trading session yesterday.

The Walt Disney Company - Earnings Surprise | FindTheBest

Disney has been on a roll for sometime now as the company has outperformed the Zacks Consensus Estimate for the past six quarters. Including the first quarter, the company has beaten the Zacks Consensus Estimate by an average of 9.7% in each.

Frozen , released in 2013, continues to mint money for Disney. After raking in over $1.2 billion at the worldwide box office, the movie's merchandise continues to be a hot property in the toy market. Dolls and dresses, modeled on the protagonist, were one of the most sold items this Christmas. This along with Mickey and Minnie, Spider-Man and Avengers led Consumer Products division to post record quarterly profits. Moreover, Domestic Parks and Resorts continue with their good show.

The Media segment too, performed stupendously well on the back of increasing revenues at both Cable Network and Broadcasting. However, programming costs on account of NFL and SEC network continue to escalate at ESPN.

Though Studio segment revenues failed to impress this quarter, Disney has a solid movie slate for the rest of fiscal 2015. This includes the much awaited Avengers: Age of Ultron , Ant-Man and Stars Wars: The Force Awakens . We expect Disney studio to generate record revenues this year.

Going back to results, revenues came in at $13,391 million, up 9% year over year and way ahead of the Zacks Consensus Estimate of $12,852 million.

Total segment operating income increased 17% to $3,545 million, based on strong performance across all divisions, particularly Consumer products, Studio, and Parks and Resorts segments.

Segment Details

Media Networks revenues increased 11% year over year to $5,860 million during the quarter, attributable to 11% rise in Cable Networks revenues to $4,166 million and 11% rise in Broadcasting revenues to $1,694 million.

The segment's operating income grew 3% to $1,495 million owing to an increase of 35% in Broadcasting operating income to $240 million, partly offset by a 2% decrease in Cable Networks operating income to $1,255 million.

Parks and Resorts revenues rose 9% to $3,910 million, while the segment's operating income increased 20% to $805 million. Domestic operations were robust despite the measles outbreak. However international operations were marred by the pre-opening expenses of the Shanghai Disney Resort and a strengthening U.S dollar.

Management stated that the construction of Shanghai Disney Park was on track for the grand opening in 2016.

In the quarter, per capita spending in the Parks grew 4% on increased ticket prices and food and beverage spending. Management stated that so far in the second quarter of fiscal 2015, domestic resort reservations have gone up 3% year over year, while booking rates are up 4%.

Studio Entertainment revenues fell 2% to $1,858 million, whereas operating income of $554 million increased 33%. Tougher year-over-year comparison was the primary reason behind lower revenues. Even with box office collections of $484.7 million, Big Hero 6 , released this quarter, was no match for the blockbuster performance of Frozen , released in the prior-year quarter.

However, solid home entertainment performance of Guardians of the Galaxy , Frozen and Maleficent was a positive in the quarter along with increases in television distribution rights.

Consumer Products revenues increased 22% to $1,379 million while segment operating income rose 46% to $626 million, owing to gains from Merchandise Licensing and Retail business.

Interactive revenues for the quarter fell 5% to $384 million, whereas operating profit increased 36% to $75 million. Titles like Tsum Tsum continued to perform well in the quarter, along with Frozen Free Fall . However, lower unit sales and higher marketing costs negatively impacted performance.

Other Financial Details

During the first quarter, Disney generated free cash flow of $857million, up 54.7% year over year. The company ended the quarter with cash and cash equivalents of $5,077 million, borrowings of $12,167 million and shareholder's equity of $44,165 million, excluding non-controlling interest of $3,628 million.

In the reported quarter, Disney bought back 15 million shares for approximately $1.3 billion. The company has purchased 15.5 million shares for $1.4 billion as of Feb 3, 2015. The company also increased its dividend 34% to $1.15 per share in the quarter.

Currently, Disney carries a Zacks Rank #3 (Hold). Apart from Disney, other media/publishing companies which are scheduled to report quarterly results this week include Twenty-First Century Fox, Inc. ( FOXA ), News Corp. ( NWSA ) and Lions Gate Entertainment Corp. ( LGF ). Twenty-First Century Fox is likely to report on Feb 4 whereas the other two are slated to announce results on Feb 5.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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