Phenomenal Earnings at Disney Fail to Impress Analysts

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Not even 21% greater profits at the "Happiest Place on Earth" can make analysts happy these days.

Walt Disney Company (NYSE: DIS) chief executive and chairman, Robert A. Iger, called the quarterly results “phenomenal” in a statement. The totals were “the largest quarterly earnings in the history of our company.” But analysts were unimpressed.

Disney saw net income of $1.83 billion, or $1.01 cents a share. That compares with $1.48 billion, or 77 cents a share, in the same quarter a year earlier. And yet, Disney shares fell 1.1% after the company missed analysts’ expectations. Analysts were hoping for revenue of $1.77 billion, but the company only brought in a flat $1.63 billion. Overall revenue rose to $11.09 billion from $10.68 billion, a nice increase, but still a disappointment to analysts' expectations of $11.32 billion.

Disney saw several increases and several decreases in its diverse operating divisions.

“The Avengers” didn't just smash the box office with $1.5 billion in global ticket sales, it helped Walt Disney Studios bring in an operating income of $313 million, an increase from $49 million a year earlier. The company notes it could have done better in the studios division but was held back by lousy John Carter DVD sales. The improved earnings also owe some of the credit to Pixar's Brave.

Operating income at Cable Networks increased $14 million to $1.9 billion for the quarter thanks to growth at the Disney Channels and ABC Family. But the number was held back by a decrease at ESPN. The company points out that ESPN was the victim of deferred affiliate fees related to annual programming commitments. (In layman's terms, they had higher expenses for NBA and MLB games.) However, the benefits of contractual rate increases and subscriber growth on affiliate fees along with higher advertising revenue more than offset increased programming and production costs at ESPN (Layman's terms: people still subscribe to ESPN).

The theme park unit operating income rose 21% on greater profits at Tokyo Disney Resort, Disney Cruise Line and the U.S. parks and resorts. In June, Disney opened a $1 billion expansion of its California Adventure park, featuring a new Cars Land (Go Mater!). Increased attendance at California Adventure drove up operating income for the theme park unit, up 21% to $630 million. Bookings on a new cruise ship didn't hurt much either.

Consumer products revenues increased 8% to $742 million and segment operating income increased 35% to $209 million. “Consumer products” comprises licensed merchandise such as costumes, stuffed animals, toys, and other branded items. Higher income was due to increases in Merchandise Licensing and in the retail businesses. The increase in Merchandise Licensing was driven by lower revenue share with the Studio Entertainment segment and higher licensing revenue in Japan, which had been down the year before as a result of the impact of the earthquake and tsunami.

The company's interactive games division saw revenue fall 22% to $196 million, and segment operating results improved from a loss of $86 million in the prior-year quarter to a loss of $42 million. Why the decrease? Fewer significant titles compared to a year ago. But the improvements came from an increase in social games. In other words, console games were down, online games were up. The company intends to keep investing in more social games.

What lesson did Disney learn? More Avengers! Iger added that Joss Whedon would return to write and direct the sequel to "The Avengers," the No. 3 highest grossing film of all time. But why stop there when the broadcast division didn't report glowing numbers? Whedon will also develop a TV show for ABC.

Although the sequel's release date isn't set, Disney plans to release a slew of sequels featuring Avengers characters including "Iron Man 3" in May, "Thor: The Dark World" in November, and "Captain America: The Winter Soldier" in April 2014, which should make investors happy. You can never have too much of a good thing.

However, before anyone gets too excited about the Avengers making even more money for Disney, it would be wise to go research Joss Whedon's track record for canceled shows at Fox.

ErinAnnie has no positions in the stocks mentioned above. The Motley Fool owns shares of Walt Disney. Motley Fool newsletter services recommend Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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