The Wonderful World of Walt Disney
Erin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In my opinion, Walt Disney Company (NYSE: DIS) is as close to perfect as a stock can get. The company not only brings incomparable name recognition and goodwill to the table, but it is also well-diversified in multiple segments. A bad year in one division of the company can be overcome by a better year in another division. Like all companies, the House of Mouse is not recession-proof, but because of its dynamic interests, it comes close.
By the numbers, the company offers an impressive cash conversion cycle, or CCC, that is bound to keep its vendors happy. It doesn't have perfect cash flow, but few companies really ever do. Last quarter (Fiscal Q1), Disney missed on estimates for revenues, but beat expectations on earnings per share. The company still grew in revenue, but it didn't grow as much as analysts had predicted it might. But with an EPS of $0.80 per share, up from $0.68 last year, investors need not worry. Not to mention, it offers an affordable stock with a reliable dividend. This is a good company, and a good stock.
The company operates in five business segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive Media. Because of the intertwined and yet independent model of the company, Disney sets itself apart so that no one competitor can bring it down in any division. Walt Disney is not just the home of childrens' cartoons and Mickey Mouse. It owns powerhouse brands Pixar, Marvel, ESPN, and ABC. While the focus continues to be on family entertainment across multiple platforms, the mix of sports, broadcast television, retail products, parks and resorts, and interactive gaming keeps it from ever going flat.
The last fiscal quarter of 2011 saw an increase in revenues in three divisions over first fiscal quarter of 2011, but two divisions saw losses. Overall, the company saw a 1% increase in revenue. In operating income three segments saw increases, one remained flat, and one suffered a major loss. Overall, the company still came out ahead with 11% growth. Such diversified segments in the company helps it overcome major difficulties in any one division.
The Media Networks segment reported revenues for the quarter increased 3% to $4.8 billion and segment operating income increased 12% to $1.2 billion. This includes the Disney Channels, ESPN channels, and broadcast channels including ABC. But it wasn't just Disney having a bad spell in this segment, competitors such as CBS (NYSE: CBS) logged revenue of $3.78 billion, also missing analyst expectations, but non-GAAP EPS came in at $0.57, and GAAP EPS was $0.55 for Q4, both considerably higher than the prior year, and beat expectations.
Parks and Resorts revenues for the quarter increased 10% to $3.2 billion and segment operating income increased 18% to $553 million. Results for the quarter were driven by increases at the domestic parks and resorts and Disney Cruise Line. Finding a direct and obvious competitor for this division is not straightforward. No other company is involved in maritime activities, as well as family roller coasters internationally. There is Comcast (NASDAQ: CMCSA) which operates a a few parks (in addition to its broadcast networks, cable networks, telecom, microwaves, and refrigerators – hat tip to sitcom 30Rock). But even with all that it brings to the table, Comcast still doesn't own a fleet of cruise ships and private beaches.
Studio Entertainment revenues decreased 16% to $1.6 billion and segment operating income increased 10% to $413 million. The revenue decline was driven by fewer Disney branded titles in wide theatrical release in the current quarter along with an adverse impact from the timing of title availabilities in television markets and lower DVD volumes. The company saw improved worldwide theatrical results which is a marked difference from motion picture companies in general that saw slipping returns and a dismal 2011.
Every time Disney produces a new book, movie, character, or video game, the new product touches all aspects of the company. Hannah Montana, or the Frog and the Princess, aren't just television shows, they are fully branded and licensed entities across the entire company- studio production, theme park, interactive games, media network, and right into consumer products. The success of a new television character becomes the success of the next plush doll in consumer products. The Consumer Products segment reported an operating income of $313 million for the quarter was comparable to the prior-year quarter while revenues increased 3% to $948 million. Retail sales were driven by Cars and Tangled merchandise in the current quarter compared to Toy Story in the prior-year quarter. The revenue increase at retail was largely offset by higher operating costs associated with increased volume.
Interactive Media revenues for the quarter decreased 20% to $279 million and segment operating results decreased by $15 million to a loss of $28 million. Again we find Disney in a class all its own, defining its own category. No other company in this segment has the same brand loyalty, character loyalty, and built in audience at the same level. Other interactive gaming companies, such as Electronic Arts (NASDAQ: EA) or Zynga do not own the hundreds of Mickey Mouse titles, books, TV shows, retail products, and customer loyalty behind each game. Zynga must still rely on other outlets for production and customer pull. While EA has significant character/brand loyalty, (the company has the rights to some of the Star Wars titles) and a large audience, the company still buys the rights to other brands' licensing. This detail alone distinguishes the depth of the Disney company. But whereas Disney Interactive Media decreased 20%, Electronic Arts increased revenue to $1.65 billion, a 0.8% sales growth.
Disney beats the competition overall by intertwining the success of all of its brands across the company, while also diversifying the company into independent segments. A loss in interactive media is compensated by success in consumer products. Studio entertainment went down, but parks and resorts, and media networks improved.
The company is successful by the numbers and by the business model. The stock has a five-star rating (out of five) at Motley Fool CAPS, with 4,827 members out of 5,154 rating the stock outperform, and 327 members rating it underperform. Among 1,453 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 1,411 give Walt Disney a green thumbs-up, and 42 give it a red thumbs-down. That many people can't be wrong. Thousands of daily park goers, and millions of television viewers can't be wrong. Walt Disney can't be beat as a long-term, affordable stock.
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