How A Company’s Bean Counters Earn Their Money

by Abby Joseph
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Submitted by Abby Joseph at Profit Confidential as part of our contributors program.

Reading financial documents is like reading a textbook on microeconomics; there’s a lot to learn, but you can pass out from boredom.

The U.S. Securities and Exchange Commission (SEC) requires a publicly traded company to file what’s called a “form 10-Q.” This is a more in-depth document that describes the quarterly performance of a company‘s specific operations, along with a more thorough review of its earnings performance. While time-consuming, these reports are very much worth reading, even if you aren’t a shareholder.

The Walt Disney Company (NYSE/DIS) is a company that’s on my list of important benchmark stocks. Disney’s operations are representative of the media and entertainment industry which, for better or worse, is a huge portion of the global economy.

Disney hinted that business was getting better in its fiscal first quarter of 2013 (ended December 29, 2012) due to theme parks. The company’s latest 10-Q for quarterly earnings ended March 30, 2013 proved it.

According to the company, fiscal 2013 second-quarter sales grew to $10.6 billion, up solidly from $9.6 billion in the comparable quarter last year.

Earnings improved significantly to $1.5 billion, up from earnings of $1.1 billion. Fully diluted earnings per share were commensurate to $0.83 per share, compared to diluted earnings per share of $0.63 in the 2012 comparable quarter.

In the company’s recent quarter, what was notable was Disney’s strength in its operating division, which is broken down into several areas, including median networks, parks and resorts, studio entertainment, consumer products and interactive.

The previous quarter showed weakness in the studio entertainment area, but the company recently had a big hit with Oz the Great and Powerful.

Also notable in the company’s 10-Q was its share repurchases.

In the six months ended March 30, 2013, Disney bought back 37 million shares of its common stock, spending $1.9 billion. This is huge, and it is partially the reason why the company’s earnings per share, dividends, and share price performance have been so strong.

On the stock market, Disney has helped the Dow Jones industrials considerably. The company’s price-to-earnings (P/E) ratio is approximately 21 and its dividend yield is 1.2%. (Read “How Did Walt Disney Just Double on the Stock Market?“)

A 10-Q, along with other SEC documents, is much more valuable than a company’s regular quarterly press release, or even a conference call.

Disney’s 10-Q describes segment performance, how seasonality affects the company, and more specifics regarding acquisitions, including Disney’s recent acquisition of Lucasfilm Ltd. LLC for 37.1 million shares and $2.2 billion in cash.

Disney’s parks and resorts division saw revenues jump 14% to $3.3 billion. Earnings for this division leaped 73% to $383 million.

A company’s10-Q is typically long, boring, and quite detailed. But it’s worth reading if you want to better understand a public company’s operations. The 10-Qs of the biggest, brand-name companies are very helpful in enhancing your market view.

In Disney’s case, business is getting better.

Disney’s share price, which is at a record high, isn’t unreasonable at all—this company has earned it.

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