The Future of the Walt Disney Corporation

Marcus is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Although the worldwide media and entertainment icon Walt Disney (NYSE: DIS) is normally taken for granted, the company has become a little more inconsistent with regards to cash flows, margins, and gains on investments than the majority of organizations of its dimension and popularity. These types of disparities are mostly a direct result of the aspect of the business (in particular hit motion pictures); however, they can still generate business opportunities for people willing to invest. Disney rarely becomes inexpensive, and the corporation offers numerous levers to increase results during the coming years. Still, investors should keep their eyes open to find an opportunity to buy shares if the stock falls on transitory negative news.

Fiscal First Quarter Outcomes Essentially Fine

Disney essentially did great for the fiscal first quarter, although sell-side experts were hoping to find a little more margin leverage. Since this leverage is actually a crucial portion of the multiple-year bull theory, it is really worth looking at in the approaching quarters. Revenue increased 5% as reported, perfect for a modest beat of expectations. Multimedia networks were definitely powerful, with revenue up 7% regarding small single-digit advertisement revenue expansions at ESPN as well as the other networks/channels. Resort/Park results were also solid, increasing more than 7%, aided by a 4% raise in domestic presence as well as greater per-cap consuming (up 6%). Usually-volatile studio income has decreased 5% this particular quarter, though customer products increased 7%. And at last, income through the interactive business increased 4%.

Just as pointed out previously, Disney wasn't much skilled at converting revenue directly into profits. In fact the operating income dropped 3% and missed general opinion estimates - which makes the miss all the worse within the margin line, considering the good performance in revenue. The network income had decrease 2%, along with the considerably-bigger cable television segment (down 2%), pulling down the 16% progress in broadcast. Parks revenue had been up 4% since the company still has yet to really increase its investments, and at the same time studio profits dropped 43%. Consumer earnings increased 11%, and interactive profit margins corrected a decline from the same quarter last year.

Multimedia Networks

Disney continues to be dynamic and ambitious in locking up crucial content for its ESPN sports entertainment empire. The majority of its key sports are locked up past 2020, with NBA (2015/16) and NASCAR (up in 2014) the main exceptions--you may possibly dispute if the decreases in NASCAR viewership make it a "significant sport" any longer.

Although Disney rarely has problems selling advertisements for its sports entertainment programming, getting compensated by its distributors - cable businesses such as Time Warner Cable (NYSE: TWC) and Comcast (NASDAQ: CMCSA) - is important also, and we are coming up to a completely new renewal period. Comcast's current P/E ratio is 18 as its income improvement - which has been substantial recently - is likely to slow. I would be curious about discovering the reason why this is the circumstance, since newly released trends have pointed out that it is a probable growth stock. Disney and Comcast already are squared away, although renewal discussions involving networks and cable organizations have gotten significantly more dramatic.

As for Time Warner Cable, Walt Disney said the company has signed a new carriage deal to retain Disney channels like ESPN and the namesake Disney Channel. Time Warner has been struggling with little improvement in revenue, but at least a few enhancements on the bottom line; however, I would be hesitant to say that Time Warner will reach its earnings goals, which indicate earnings multiples nearer to 13 or 14.

Moment for the Parks to Make Contributions

Disney has invested the last few years spending substantial sums of money in its resorts and parks business. The actual consequence has been new income-generators such as the Art of Animation hotel in Orlando, the Aluani resort in Hawaii, the Disney California Adventure, the brand new cruise ships and additional development with the Shanghai Disney resort.

The problem for Disney is going to be leveraging these brand new assets into lucrative income. Even though the resorts/parks business is not typically one of the most lucrative sections of Disney, continuous double-digit margins really are not something you want to sneeze at--therefore it is a substantial portion of the pie.

In the near future, I have very little doubt that Disney's brand new resort hotels are going to be filled with visitors, and also that its luxury cruise ships will not have any problems competing with companies like Royal Caribbean Cruises (NYSE: RCL) for passengers. But bear in mind it is wise to take into consideration that Royal Caribbean's net yield nudged up 1.8% year over year using a regular currency structure supported by better-than-expected close-in reservations and onboard spending. Nevertheless, the occupancy rate decreased to 101.8% from 103.0% during the prior-year quarter.

Studios - Ignore the Negative Aspects, Watch out for Live Action

Disney continues to have something to establish in its studio procedures. No one questions the corporation's capacity to produce lucrative Pixar motion pictures or profitable Marvel features. The main factor is whether or not the corporation could get past its difficulties in non-Marvel live action motion pictures, primarily with the fresh  "Lone Ranger" and "Oz" films on the way.

And there is the Star Wars franchise, of course. Disney has undoubtedly captured considerable buzz due to its contract with Lucasfilm and its particular responsibility to produce several future Star Wars motion pictures. Unfortunately, investors certainly will not have anything to see for a couple of years.

The Implications

I would not take into consideration trying to sell Disney simply because it appears a little overpriced, although neither would I hurry to purchase with the supposition that it will effortlessly provide solid results.  I would choose to wait in case Disney trips up anywhere - lower than predicted increase from the parks business or perhaps a studio failure - and after that get the stock while shares are slightly less expensive.

Vinny3001 has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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