Disney (DIS) reported better than expected fourth quarter 2009 financial
results. Benefiting from an extra week, the company reported adjusted
EPS of 46 cents, easily beating consensus of 40 cents. Revenues also
beat expectations handily, coming in at $9.69 billion against a
consensus estimate of $9.26 billion.
Although it got little direct questioning on the call, I think a
material portion of the upside came from the extra week. My initial
back of the envelope calculations still show some upside but not enough
to justify the initial 3.8% pop in the stock. I'll be surprised if the
stock is up that much when it opens in NT on Friday.
Highlights of the quarter include -3% ad sales at ESPN, weak them
park revenues and margins, and the expected poor performance of
operating profits at the movie studio. On the upside, there was
improvement at ABC and the local TV stations and affiliate fees at the
cable nets continue to show steady gains.
Like other media companies that reported last week, Disney indicated
ad trends are improving. Ad sales are getting an added boost from good
ratings at ESPN and a decent start to the new TV season at ABC
including a couple of new shows turning into hits. The company
mentioned that scatter pricing is running up 20% and that option
pickups for the March quarter are the best in ten years. Trends at the
local TV stations improved to -15% in the September quarter. Management
was less optimistic about December quarter trends than other TV station
owners who reported last week.
Disney's theme parks set the company apart from the rest of the
media companies. I find trends here to be a bit worse, especially
adjusting for the extra week. Attendance is holding up well but the
cost is high with revenues down more than 10% adjusting for the extra
week and also an unspecified amount of sales of Vacation Club
properties. Reported results in 4Q09 showed revenue -4% and operating
income -17%. This is another indication of pressure on the business as
margins are declining.
To me the most interesting comments on the call came from Bob Iger
as he explained that the secular changes in DVD consumption are driving
the management changes and organizational restructuring at the movie
studio. Iger stuck a tone that was much more concerned than other
studio owners about permanent changes to the DVD market relative to
cyclical impacts.
As the call wraps up, the stock has given up about half of its
initial after hours gains. Overall, I find management to be balanced in
its view of the future and less hopeful than other media companies.
However, at least part of this can be chalked up to the fact that
Disney is normally not very promotional. Analyst questions are not
particularly tough suggesting that estimates will be stable despite my
initially more pessimistic view of the numbers than the street.
