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Disney's 4Q Meet EPS Expectation

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The Walt Disney Company (DIS - Free Report) posted fourth-quarter 2012 earnings of 68 cents a share, which came in line with the Zacks Consensus Estimate and jumped 15% from the year-ago quarter.

The increase in the bottom line was driven by revenue gains at the Parks and Resorts business along with the strong performance of Cable Networks division. Including one-time items, earnings increased 17% year over year.

Total revenue marked an augmentation of 3% year over year to $10,782 million but missed the Zacks Consensus Estimate of $10,903 million. Total segment operating income increased 11% year over year to $2,339 million.

Segment Details

Media Networks revenue elevated 2% year over year to $4,881 million, reflecting an increase of 2% in Cable Networks coupled with a 1% rise in Broadcasting revenue. The segment’s operating income marked an increase of 7% to $1,571 million boosted by a 9% jump in the Cable Networks’ operating income, which reflected strong performance of ESPN and the worldwide Disney Channels.

However, operating income at the Broadcasting division declined 4% to $192 million, signifying lower advertising revenue and higher equity losses at HULU.

Parks and Resorts revenue rose 9% to $3,425 million, while segment’s operating income surged 18% to $497 million, reflecting higher revenues from domestic parks and resorts, Tokyo Disney Resort and Disney Cruise Line.

Disney remains focused on deploying its capital toward expanding its Parks and resorts business, and, in turn, enhancing its markets and creating long-term growth opportunities.

Studio Entertainment revenue declined 4% to $1,402 million, while operating income plunged 32% to $80 million compared with $117 million in the year-ago quarter, reflecting decline in the worldwide theatrical results coupled with increased film cost write-downs. However, worldwide home entertainment results positively contributed to the segment.

Consumer Products revenue increased 8% to $883 million, while segment operating income rose 29% to $267 million, reflecting revenue gains at Merchandise Licensing along with retail business.

Interactive Media revenue for the quarter waned 14% to $191 million, while operating loss improved as the segment reported an operating loss of $76 million compared with $94 million in the prior-year quarter, due to strong performance of social games business.

Fiscal Highlights

Through its strong operating results, Disney continued to invest in its core businesses while expanding its operating margins. Moreover, the company remains well positioned to drive revenue growth in the coming years through its strategic initiatives.

Despite difficult operating environment, the company did not change its strategies and remained focused on deploying its capital toward expanding its Parks and resorts business, and in turn, enhancing its markets and creating long-term growth opportunities.

The company made notable progress in expanding its global footprints and augmented its operations in the developing markets such as Russia, China and India. In Russia, Disney launched an over-the-air Disney Channel.

To drive growth in China, the company is building Shanghai Disney Resort, which includes Shanghai Disneyland, two themed hotels, and retail dining and entertainment venue.

Moreover, Disney completed the acquisition of the remaining 50% stake in UTV, India. The company’s strategic move will not only enhance its presence in India but will also position it well with respect to movie offerings.

Disney entered into a multi-year agreement with the National Collegiate Athletic Association (NCAA) for international broadcasting rights of Men’s Basketball. The deal effective immediately, runs through 2023-24.

The success of ESPN continued as the latter witnessed a record number of viewers during the year, while remaining the favorite destination of sports lovers. In the last few years, ESPN, with its right mix of exclusive sporting licenses with top sporting leagues emerged as an industry leader in the pay-TV industry. It is to be noted that ESPN remains the key driver of revenues at the Media Networks division in recent times.

Further, Disney agreed to acquire George Lucas’ Lucasfilm Ltd. for a cash and stock deal worth $4.05 billion. Disney stated that it will pay half of the amount in cash and will issue 40 million shares upon closure.

We believe the acquisition will not only fortify Disney’s position but will also expand its world-class portfolio of content while creating long-term opportunities by driving revenue growth through its multiple platforms, which include theme parks, consumer products, media networks and studio entertainment.

Other Financial Details

During the quarter, Disney generated free cash flow of $602 million. The company ended the fiscal year with cash and cash equivalents of $3,387 million, net borrowings of $10,924 million and shareholders’ equity of $39,759 million, excluding non-controlling interest of $2,199 million.

Strong results poise the company well to enhance shareholders value through share repurchases. During the reported quarter, it bought back 19.1 million shares for approximately $973 million. In fiscal 2012, Disney repurchased 72 million shares for approximately $3 billion.

Walt Disney is one of the world's leading diversified entertainment companies. Moreover, the company commands a formidable portfolio of globally recognized brands, primarily its namesake brand Walt Disney, followed by ABC, ESPN and Marvel Entertainment. These renowned brands offer a strong competitive edge to the company and bolster its well-established position in the market against major players like News Corporation (NWSA - Free Report) and Time Warner Inc. (TWX - Free Report) .

We maintain a long-term Neutral recommendation on the stock. However, the shares of Disney currentlyretain a Zacks #3 Rank, which translates into a short-term Hold rating.

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