Disney Quarterly Update

Here is your quarterly Disney update. Disney makes up about 8% of my portfolio and is my third largest position and, so while this isn’t a typical growth stock discussed on this board, I do believe it is a solid long term growth story.


Disney reported quarterly earnings that beat analysts’ expectations on Tuesday, but revenue fell short of Wall Street estimates.

The company posted fiscal first-quarter earnings per share of $1.55 on $14.78 billion in revenue. The results represent a 3 percent year-over-year decline in revenue and a 10 percent drop in profit per share.

Analysts expected Disney to post earnings of $1.49 per share on $15.26 billion in revenue, according to Thomson Reuters consensus estimates.

From http://www.cnbc.com/2017/02/07/disney-reports-first-quarter-…

Revenue (billions)		Q1		Q2		Q3		Q4
2013				11.341		10.554		11.578		11.568
2014				12.309		11.649		12.466		12.389
2015				13.391		12.461		13.101		13.512	
2016				15.244		12.969		14.277		13.142
2017				14.784

EPS (Adjusted)			Q1		Q2		Q3		Q4
2013				0.79		0.79		1.03		0.77
2014				1.04		1.11		1.28		0.89
2015				1.27		1.23		1.45		1.20
2016				1.63		1.36		1.62		1.10
2017				1.55

Free Cash Flow (billions)	Q1		Q2		Q3		Q4
2013				0.559		1.586		2.723		1.748
2014				0.554		1.826		2.047		2.042
2015				0.857		2.011		1.652		2.124
2016				1.050		2.250		2.489		2.745
2017				0.220	

2017 Q1 Earnings (Current):

Revenue Growth (billions)
2016 Q1 TTM Revenue = 54.318
2017 Q1 TTM Revenue = 55.172
Year Over Year TTM Revenue Growth = 1.6%, previous quarter 6%

EPS Growth (adjusted)
2016 Q1 TTM EPS = 5.51
2017 Q1 TTM EPS = 5.63
Year Over Year EPS Growth = 2.2%, previous quarter 10.9%

P/E (Check Current Price) = 109.00/5.63 = 19.36

Revenue was down in three of the company’s four main segments, only increasing in the Parks and Resorts category:

Media networks: $6.23B, (2%) YOY
Parks and Resorts: $4.55B, +6% YOY
Studio Entertainment: $2.52B, (7%) YOY
Consumer Products: $1.48B, (23%) YOY

Like revenue, operating income was down in three of four categories, only increasing in Parks and Resorts:

Media networks: $1.36B, (4%) YOY
Parks and Resorts: $1.11M, +13% YOY
Studio Entertainment: $842M, (17%) YOY
Consumer Products: $642M, (25%) YOY

Media Networks. This segment was highlighted by decreasing numbers from ESPN driven by higher contractual rate increases for NFL and NBA programming. ESPN also saw lower advertising rates and higher affiliate revenue. This segment also took a hit from lower equity income from A&E Television and equity losses from BAMTech.

As I write, the WSJ is reporting that Disney also has a deal in the works with Google’s Youtube. Don’t forget its major stake in Hulu too. I believe Disney is fine and, if the cord-cutting trend continues, is well-positioned for life without it. Remember, this will be a gradual change, something that won’t happen overnight. With stakes in Hulu and BAMTech it will be able to stream any content it wants on its own platforms. It also is present in skinny bundle packages, Netflix, and now Youtube.

Here’s more on what Iger said about its media networks strategy going forward from CNBC:

“We believe that (digital TV services) is going to occupy a good part of the future. It’s less expensive, easier to use, more mobile friendly.” said Iger. Disney’s already signed deals to include ESPN and other channels in Hulu’s upcoming launch, as well as other unnamed services. (Google hasn’t announced anything yet but is widely expected to launch a live TV bundle attached to YouTube.)

Iger also says at some point this year those digital subscribers will be fully measured and will have some impact on Disney’s bottom line. Iger wouldn’t disclose how many traditional subscribers have been lost or how many are expected, but said that Disney earns roughly the same from new digital services as it does from traditional bundles.

“The other thing that’s important is when all these new channels launch we’re in all of their homes,” Iger added. “The notion of a skinny bundle that excluded ESPN is not the case in the new world order.”

Read more at http://www.msn.com/en-us/money/technologyinvesting/bob-iger-…

Parks and Resorts. This segment saw growth despite Hurricane Matthew messing up Disney World attendance for a week and an unfavorable shift of the New Year holidays from this quarter last year. Slightly lower attendance but higher average guest spending from higher ticket prices, food prices and hotel rates. Note: I am pretty sure the higher ticket prices purposely drove down attendance, as park guest volumes are regularly hitting max attendance during peak season the past couple of years.

International growth was strong driven by Shanghai Disney and increases at Hong Kong Disney (better cost efficiency) and Disneyland Paris (easy comp - last year park was closed for four days this quarter).

Studio Entertainment. Look, there’s not much else to say except that while Rogue One was a smash hit, it didn’t do as well as Force Awakens last year. Dr. Strange and Moana did compare well to last year’s Good Dinosaur.

Consumer Products. The decline in revenue was due to lower StarWars and Frozen merchandise sales. Star Wars: Battlefront , the video game, also brought in less licensing revenue.

See the earnings release at https://thewaltdisneycompany.com/walt-disney-company-reports…

Conclusion: Disney turned in a “meh” quarter. In AH trading it was down about a half percent. This remains a long term story vs. a short term story.

I’m not at all worried about studio revenues. Over the past decade with meaningful acquisitions including Pixar, Lucasfilms, and Marvel, Disney has positioned themselves to release blockbusters every single quarter, every single year. These properties all have movie franchises that can be used for years and years to come. These movies will drive park attendance, toy purchases, and television shows too. This year will see fewer movies than last year, so it will be tough comps all year long even with sure-fire blockbusters like sequels for Pirates of the Caribbean, Cars, Guardians of the Galaxy, and Star Wars Episode VIII. But 2018 is absolutely stacked and will face easier comps from this year’s sparser schedule. What other studio can release a schedule of feature films with such confidence?

Major park attractions are being added to in the years to come. Star Wars-themed areas in existing parks are coming to California and Orlando. Ditto with major Pixar-themed attractions. And, of course, Shanghai Disney is just getting started. With higher ticket prices, closed tracts of major parks due to construction of new attractions and the segment still showed growth - Nice!

During the call, Iger said he would stay on as CEO if asked by the Board. That’s good news. I don’t think the Board now will feel pressured to make a rushed decision. Even with the so-so results, the stock might rise this quarter because of that tidbit leading to increased valuation.

Bottom line: I don’t see any reason why the long term thesis is not intact. The stock price rose substantially this past quarter, more than 15%. But I do not think it is overvalued or terribly expensive at these levels. Just “more fairly” valued :slight_smile:

Long DIS
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If you did not pick up DIS stock a few years back then you have missed it. Acknowledge it, mourn it, accept it and move on.

Sales and EPS growth is now quickly tending to zero which means the PEG is tending to infinity.