Walt Disney (DIS) reported solid fiscal fourth-quarter results that showed significant earnings expansion led by strength at its media networks and increased consumer spending at its parks and resorts. We’re sticking with our $36 fair value estimate and think the company remains fairly valued at these levels.
Disney’s total revenue advanced 7% from the same period a year ago, led by strength in the firm’s media networks (up 9%) and parks and resorts (up 11%), and to a lesser extent, consumer products (up 12%) and interactive media (up 19%)—the latter two being relatively smaller divisions. Within its media networks, revenue from cable networks was the major driver behind the top-line expansion thanks to strong performance (higher advertising and affiliate revenue) from ESPN and its Disney Channels. Within its parts and resorts segment, the firm saw increased guest spending thanks primarily to higher average ticket prices but also from modest increases in attendance as well. Studio entertainment was the only business segment where sales declined from the same period a year ago (down 8%).
The firm leveraged overall sales growth into an impressive 23% increase in segment operating income for the fiscal fourth quarter. Again, media networks and parks and resorts led the charge, with segment operating income jumping 20% and 33%, respectively. Within media, broadcasting performed quite well, with operating income jumping nearly 40% thanks to lower programming and production costs and higher advertising revenues and affiliate fees. Higher guest spending at its domestic parks/resorts and better performance from its Disney Cruise Line (Disney Dream), Hong Kong Disneyland Resort, and Disneyland Paris also contributed significantly to consolidated operating-income improvement. Its consumer product segment income advanced 13% thanks to strong profits from Cars merchandise and Marvel properties. Operating income from studio entertainment expanded 13%, a reversal of this particular segment’s trend. Importantly, operating income from all five of its major reporting segments advanced.
Disney’s net income jumped 30%, while diluted earnings per share increased a whopping 35% in the period. Cash flow from operations and free cash flow, however, fell 5% and 22%, respectively, though cash flow almost doubled earnings for the quarter—indicating strong quality. Overall, we view the report as solid but remain on the sidelines with the stock based on the firm’s valuation.