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Disney Beats on Q4 & Full-Year Earnings

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Driven by robust performance of Interactive, Consumer Products as well as Parks and Resorts businesses, media giant The Walt Disney Company (DIS) posted stronger-than-expected fourth and full-year fiscal 2013 earnings. The quarterly earnings came in at 77 cents, a penny above the Zacks Consensus Estimate and up 13.2% year over year.

For the full year, excluding certain items, earnings per share were $3.39, a penny above the Zacks Consensus Estimate and up 10.4% year over year. Including certain items, yearly earnings were $3.38, rising 8.0% from the past year.
Among other media conglomerates, CBS Corporation (CBS) reported third-quarter 2013 adjusted earnings per share of 76 cents, which came in line with the Zacks Consensus Estimate. On the other hand, Time Warner Inc.’s (TWX) third-quarter 2013 earnings of $1.01 per share easily beat the Zacks Consensus Estimate of 89 cents.

Revenues came in at $11,568 million, up 7.3% year over year. Moreover, it surpassed the Zacks Consensus Estimate of $11,449 million. Full-year revenues were $45,041 million, up 6.5% from the previous year and surpassing the Zacks Consensus Estimate of $44,914 million.

Total segment operating income increased 6.2% to $2,484 million, based on strong performance at the Parks and Resorts, Studio Entertainment and Consumer Products divisions.

Segment Details

Media Networks revenues increased 1.3% year over year to $4,946 million, driven by 1.1% rise in Cable Networks to $3,573 million and 2.0% rise in Broadcasting to $1,373 million during the quarter.

The segment’s operating income decreased 8.2% to $1,442 million owing to a 6.9% fall in Cable Networks operating income to $1,284 million, which reflected the bringing forward of ESPN’s deferred affiliate revenues. Moreover, Broadcasting operating income fell 17.7% to $158 million, primarily due to increased primetime programming costs, absence of syndication sales pertaining to hit series like Castle and Wipeout and higher marketing expenses for the fall season, partly offset by increased advertising and affiliate revenues.  

Parks and Resorts revenues rose 8.5% to $3,716 million, while the segment’s operating income increased 14.9% to $571 million. The rise was due to revenue growth from domestic parks and resorts and increase in vacation club ownership sales and royalty revenues from Tokyo Disney Resort, partly offset by lackluster performance at Disneyland Paris.

Disney remains focused on deploying its capital toward expanding its Parks and Resorts business, and thereby increasing its market share and creating long-term growth opportunities. The company announced that it was going to unveil Marvel-themed attraction at Hong Kong Park. Moreover, the Shanghai resort is likely to be completed by 2015.

Management stated that so far in the first quarter of fiscal 2014, domestic resort reservations have remained flat year over year.  

Studio Entertainment revenues rose 7.4% to $1,506 million, while operating income increased 35% to $108 million. The improvement was driven by higher theatrical results, increased television/subscription video on demand (TV/SVOD) distribution, partly offset by a lower home entertainment and higher film impairments.

Consumer Products revenues increased 13.7% to $1,004 million, while segment operating income rose 30.0% to $347 million, reflecting gains from Merchandise Licensing and the publishing business.

Interactive revenues for the quarter rose over twofold to $396 million, while operating profit was $16 million against a loss of $76 million in the prior-year quarter. The increment reflected higher console game sales (especially propelled by launch of Disney Infinity) and growing Japan mobile business.

Other Financial Details

During the fiscal year 2013, Disney generated free cash flow of $6,656 million, up 59.2% year over year. The company ended the quarter with cash and cash equivalents of $3,931 million, borrowings of $12,776 million and shareholders’ equity of $45,429 million, excluding non-controlling interest of $2,721 million.

Strong cash flow generation positions the company favorably to enhance shareholders’ value through share repurchases. In the reported quarter, Disney bought back 21.8 million shares for approximately $1.4 million. For Fiscal 2013, it repurchased 71.3 million shares worth approximately $4.1 billion.

Our Take

This Zacks Rank #3 (Hold) company remains well positioned to drive revenue growth through its strategic initiatives. The company’s investments in its core businesses are also aimed at expanding operating margins.

Disney announced two major developments related to the Marvel and Lucas films during the earnings release. The company has scheduled the official release date for Star Wars Episode VII on Dec 18, 2015.

Moreover, the company announced a deal with Netflix Inc. (NFLX) to create multiple live action series and a mini series event. According to the deal, Marvel TV will collaborate with ABC Television Studios to develop four series based on Marvel’s popular characters. Both these developments will likely boost Disney’s financials, going forward.

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