Disney - Mixed Results Mean Time to Buy
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Welcome to earnings season, where it's another day, another big name reporting results. The Walt Disney Company (NYSE: DIS) topped estimates in terms of profit, with its first-quarter result of 80 cents per share trumping the consensus view of 71 cents. That net translates into a total of $1.5 billion for the quarter. That was the good news. The bad was that the company's revenue for the period amounted to $10.8 billion, not quite the $11.2 billion analysts were expecting. The resulting disappointment was probably what drove the shares south in after-hours trading; the stock was off 58 cents (around 1.4%) from its closing price.
Most likely, such punishment will be limited because the company is doing fine and it'll probably continue to do so. Its eternally popular theme parks and resorts unit saw robust year-on-year growth of 10% on the back of an improving economy and the fact that, in the theme park universe, is there any place more desirable to visit than Disneyland? Meanwhile, the unit's offerings will get a boost later this year when the company's fourth cruise ship hits the water and starts ferrying passengers.
The performance of the company's other key units wasn't as impressive, but management is taking sensible and concrete steps to plug these holes. Disney's broadcasting unit suffered a 7% revenue drop in 1Q, not least because its flagship TV station ABC had neither a runaway, ratings-busting hit nor a singular Super Bowl-ish event. Those victories have lately been won by others, with Comcast (NYSE: CCW), via NBC, airing the well-watched 2012 Super Bowl and News Corporation's Fox regularly beating ABC shows with the enduringly popular American Idol. In the very near future, however, ABC will air the Academy Awards and according to CEO Bob Iger it's already sold all of the commercial time for the popular event.
For DIS, business was better at its cable channels. Smartly, the company has ensured solid revenue generation from these outlets by signing a long-term deal with heavyweight cable provider (and rival broadcaster) Comcast. In terms of non-premium TV the company seems to be determined to avoid costly moves like the hiring of star news anchor Christiane Amanpour as the ultimately short-lived host of the political interview show "This Week." Additionally, it seems that the company will team up with Univision, the top Spanish-language broadcaster, to launch a 24-hour news channel. If done right -- and Disney has a history of doing big deals right -- this should both cut its costs and significantly boost the amount of sellable commercial time for the news segment's offerings.
The movie business was also not particularly kind to Disney, with revenues falling 16% during the quarter. Unlike, say, Viacom's Paramount, which released Mission Impossible: Ghost Protocol, The Mouse didn't have a hit tentpole movie during the quarter. Film is always a dicey, unpredictable endeavor but DIS, admirably, refuses to be discouraged and continues to swing for the fences. The company's Marvel production division will release The Avengers this coming fall, and already Disney has launched marketing for the film with strategically-aired TV spots during the Super Bowl. Money factory Pixar will also have a 2012 release, The Brave. Although the film doesn't belong to one of the production house's durable franchises like Toy Story or Cars, Pixar has a history of delivering well-received, state of the art movies that bring in the box office bucks.
Disney's historically meaty cash cow, consumer products, was largely flat during the quarter, which might have something to do with the absence of any fresh movie/TV titles to provide material for sellable merchandise. That looks to continue during the year, but the nice thing about a conglomerate like Disney is that it's got its fingers in so many pies, there's always some place that can produce revenues and profit.
In the end, this probably won't be Disney's most memorable quarter. Having said that, its results certainly weren't bad and its current plans lay the foundation for better quarters. People expect strong results from the Disneys of the world and when they don't deliver, their stock prices take a hit. This is what happened with these latest results, so investors should consider the current share price weakness an opportunity to load up on the Mouse. This is a good company, and at the moment it's a relative bargain.
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