Company Update (NYSE:DIS): Walt Disney Co Reports Record Quarterly Earnings for the First Quarter of Fiscal 2016


Walt Disney Co (NYSE:DIS) reported record quarterly earnings of $2.9 billion for its first fiscal quarter ended January 2, 2016 compared to $2.2 billion for the prior-year quarter. Diluted earnings per share (EPS) for the quarter increased 36% to $1.73 from $1.27 in the prior-year quarter. Excluding certain items affecting comparability(1), EPS for the quarter increased 28% to $1.63.

“Driven by the phenomenal success of Star Wars, we delivered the highest quarterly earnings in the history of our Company, marking our 10th consecutive quarter of double-digit EPS growth,” said Robert A. Iger, Chairman and Chief Executive Officer, The Walt Disney Company. “We’re very pleased with our results, which continue to validate our strategic focus and investments in brands and franchises to drive long-term growth across the entire Company.”

The following table summarizes the first quarter results for fiscal 2016 and 2015 (in millions, except per share amounts):

SEGMENT RESULTS

The following table summarizes the first quarter segment operating results for fiscal 2016 and 2015 (in millions)

Media Networks

Media Networks revenues for the quarter increased 8% to $6.3 billion, reflecting higher advertising and affiliate revenues, and segment operating income decreased 6% to $1.4 billion. Advertising revenue growth was due to an increase in units sold and higher rates, partially offset by lower ratings. Affiliate revenue growth was due to contractual rate increases, partially offset by a decline in subscribers and unfavorable foreign currency translation impacts.

The following table provides further detail of the Media Networks results (in millions):

Cable Networks

Cable Networks revenues for the quarter increased 9% to $4.5 billion and operating income decreased 5% to $1.2 billion due to a decrease at ESPN and lower equity income from A&E, partially offset by growth at the domestic Disney Channels.

The decrease at ESPN was due to higher programming costs, partially offset by an increase in advertising and affiliate revenues. Results for the quarter were negatively impacted by the timing of our fiscal quarter end relative to when College Football Playoff (CFP) bowl games were played, which resulted in an increase in programming costs and advertising revenues. Six CFP games were aired in the current quarter that were aired in the second quarter of the prior year. Increased programming costs due to the CFP games as well as contractual rate increases for NFL and college football programming were partially offset by the absence of rights costs for NASCAR. Higher advertising revenue was due to an increase in units sold and higher rates, both of which benefited from the CFP. Affiliate revenue growth was due to contractual rate increases, partially offset by a decline in subscribers and unfavorable foreign currency translation impacts.

Lower equity income from A&E was due to lower advertising revenue and higher programming costs.

The increase at the domestic Disney Channels was due to higher program sales in the current quarter and affiliate revenue growth, partially offset by higher programming costs. Increased programming costs were driven by higher costs for original programming.

Broadcasting

Broadcasting revenues for the quarter increased 7% to $1.8 billion and operating income decreased 7% to $223 million due to higher programming costs and an increase in equity losses from Hulu, partially offset by advertising and affiliate revenue growth and higher program sales. The increase in programming costs was due to a higher average cost of new scripted programming and the costs of airing New Year’s Eve specials that aired in the second quarter of the prior year. Higher equity losses from Hulu were due to increased programming and marketing costs driven by new content offerings, partially offset by higher subscription and advertising revenues. The increase in broadcasting advertising revenue was due to higher units sold, higher rates and the airing of New Year’s Eve specials. These increases were partially offset by lower network ratings and a decrease in political advertising at the owned television stations. Higher programming sales were driven by the sale of Jessica Jones in the current quarter.

Parks and Resorts

Parks and Resorts revenues for the quarter increased 9% to $4.3 billion and segment operating income increased 22% to $981 million. Operating income growth for the quarter was due to an increase at our domestic operations, partially offset by a decrease at our international operations. Parks and Resorts operating results benefited from the timing of our fiscal quarter end relative to the New Year’s holiday. The current quarter included one week of the holiday period that fell in the second quarter of the prior year.

Higher operating income at our domestic operations was due to guest spending and attendance growth, partially offset by higher costs. The increase in guest spending was due to higher average ticket prices at our theme parks and cruise line, increased food, beverage and merchandise spending and higher average hotel room rates. Cost increases were due to labor and other cost inflation, new guest offerings, higher depreciation associated with new attractions at Walt Disney World Resort and expenses incurred for the dry-dock of the Disney Dream in the current quarter.

Lower operating income at our international operations was due to higher operating costs and lower attendance at Disneyland Paris as well as higher pre-opening expenses at Shanghai Disney Resort. Results at Disneyland Paris were impacted by the closure of the park for four days in November 2015.

Studio Entertainment

Studio Entertainment revenues for the quarter increased 46% to $2.7 billion and segment operating income increased 86% to $1.0 billion. Higher operating income was due to an increase in theatrical distribution results, a higher revenue share with the Consumer Products & Interactive Media segment, growth in TV/SVOD distribution and increased home entertainment results. These increases were partially offset by the impact of foreign currency translation due to the strengthening of the U.S. dollar against major currencies.

The increase in theatrical distribution results and higher revenue share with the Consumer Products & Interactive Media segment were due to the strong performance of Star Wars: The Force Awakens in the current quarter. Higher TV/SVOD distribution results were driven by international growth and the increase in home entertainment results was due to sales of Star Wars Classic titles.

Consumer Products & Interactive Media

Consumer Products & Interactive Media revenues for the quarter increased 8% to $1.9 billion and segment operating income increased 23% to $860 million. Higher operating income was due to growth at our Merchandise Licensing business and, to a lesser extent, at our Publishing and Games businesses, partially offset by a decrease at our Retail business and the impact of foreign currency translation due to the strengthening of the U.S. dollar against major currencies.

The increases at Merchandise Licensing and Publishing were due to higher licensing revenues from the performance of Star Wars merchandise and the timing of minimum guarantee shortfall recognition at Merchandise Licensing. At Games, growth was due to higher licensing revenue from the success of Star Wars: Battlefront, partially offset by lower Disney Infinity results. The decrease from Disney Infinity was due to higher inventory reserves and lower unit sales volume. The decrease at Retail was due to lower comparable store sales and margins in Europe and North America as well as at our online business in North America, reflecting strong sales of merchandise based on Frozen in the prior-year quarter, partially offset by current quarter sales of Star Wars merchandise. (Original Source)

Shares of Walt Disney are down nearly 3% in after-hours trading. DIS has a 1-year high of $122.08 and a 1-year low of $89.04. The stock’s 50-day moving average is $98.91 and its 200-day moving average is $106.34.

On the ratings front, Walt Disney has been the subject of a number of recent research reports. In a report issued on February 1, Jefferies Co. analyst John Janedis maintained a Hold rating on DIS, with a price target of $92, which represents a slight upside potential from current levels. Separately, on January 26, Atlantic Equities’ Hamilton Faber downgraded the stock to Hold and has a price target of $104.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, John Janedis and Hamilton Faber have a total average return of 10.3% and -2.5% respectively. Janedis has a success rate of 52.9% and is ranked #341 out of 3556 analysts, while Faber has a success rate of 66.7% and is ranked #1994.

Overall, 2 research analysts have rated the stock with a Sell rating, 8 research analysts have assigned a Hold rating and 8 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $109.13 which is 21.1% above where the stock opened today.