The Walt Disney Company (DIS), a diversified entertainment company, recently reported better-than-expected first-quarter 2010 results on the heels of strong results from its Media Networks segment, and effective cost management at its film studio.
The quarterly earnings of 47 cents a share outdid the Zacks Consensus Estimate of 39 cents, and jumped 15% from 41 cents delivered in the prior-year quarter. On a reported basis, including one-time items, earnings came in at 44 cents, down 2% from 45 cents posted in the year-ago quarter. In terms of earnings surprises, Disney outperformed the Zacks Consensus Estimate by 21% in the quarter and by 12% in fourth-quarter 2009.
Although double-digit growth was registered in the bottom-line due to a sustained focus on controlling costs, the top-line remains under pressure, experiencing a slight uptick of 1% year-over-year to $9,739 million.
Segment Breakdown
Media Networks revenue rose 7% to $4,175 million, driven by revenue increase across Cable Networks (up 8%) and Broadcasting (up 5%). Total operating income surged 11% to $724 million driven by Cable Networks (up 5%) benefiting from strengths at Disney Channels and ESPN, and Broadcasting (up 30%) due to better results from ABC Studios production, partly offset by decreases at the ABC Television Network and owned television stations.
Parks and Resorts revenue remained flat at $2,662 million compared to the prior-year quarter, whereas operating income dropped 2% to $375 million reflecting weak consumer spending.
Studio Entertainment revenue showed a marginal decline of 1% to $1,935 million, but posted an increase of 30% in operating income to $243 million, reflecting lower marketing and distribution costs, and decreased amortization expense for domestic home entertainment, and hurt by higher film cost write-downs for domestic theatrical distribution and lower music album sales during the period.
Consumer Products revenue dipped 3% to $746 million, whereas operating income plunged 8% to $243 million reflecting lower licensing revenue.
Interactive Media revenue for the quarter tumbled 29% to $221 million, and posted an operating loss of $10 million, an improvement of 78% over the prior-year quarter reflecting improvements at Disney Interactive Studios and Disney Online.
Lower unit sales of self-published video games at Disney Interactive Studios were more than offset by a fall in marketing and inventory costs, whereas a rise in subscription revenue at Club Penguin benefited Disney Online.
Financial Aspects
During first-quarter 2010, Disney, the media conglomerate, generated free cash flow of $608 million, and ended the quarter with cash and cash equivalents of $3,204 million and total borrowings of $13,831 million.
Zacks Estimate Trend for Second-Quarter 2010
The current Zacks Consensus Estimate of 45 cents a share was stagnant in the last 30 days, with only 1 out of the 28 analysts covering the stock having raised his estimate, whereas 4 other analysts have lowered theirs. However, the changes did not have any material impact on the Zacks Consensus.
Disney’s Acquisition of Marvel
Walt Disney acquired Marvel Entertainment in a cash and stock deal for $4.24 billion. The company has long been dominated by female characters such as ’Cinderella,’ ‘Snow White’ and now ‘Hannah Montana,’ and has been struggling to achieve similar success with male characters. The acquisition of Marvel provides Disney with brands and characters that target young males.
Disney acquired Marvel Entertainment’s strong global brand and world-renowned library of more than 5,000 characters, which include Iron Man, Spider-Man, X-Men, The Incredible Hulk, The First Avenger: Captain America, Fantastic Four and Thor.
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