Disney’s Earnings Jump 32% Led By The Success Of Frozen And Thor

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Disney (NYSE:DIS) recently reported its earnings for the first quarter of fiscal 2014. (Fiscal years end with September.)  The company saw overall revenue growth of 8.5% and earnings growth of 32%, primarily driven by the success of movies Frozen and Thor: The Dark World. [1] Higher attendance and per capita guest spend at theme parks and encouraging sales of Infinity further boosted Disney’s revenue and operating income. The sports giant ESPN also saw 10% increase in advertisement revenues. [2] On the cost front, programming costs at ESPN were comparable to the prior year as contractual increases for the NFL and college football programming were offset by the absence of costs for U.K. sports rights. Overall, Disney posted good set of numbers with solid growth across the segments.

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Studio Entertainment Leads The Growth

Disney’s run at the box-office in 2013 was stellar. The company benefited from the success of movies like Iron Man 3, Monsters University, Thor: The Dark World and Frozen. These four movies alone grossed close to $3.5 billion at the box-office globally. During the December quarter, the studio benefited from Frozen, which had a production budget of $150 million and has already grossed $865 million at the box-office globally and is still counting. [3] Beyond the financial success, Frozen earned the Golden Globe for Best Animated Feature Film of the Year, as well as Oscar nominations for Best Animated Film and Best Song, reflecting Disney’s efforts in creativity.

Revenues at the Studio Entertainment increased by 23% to $1.89 billion while the operating income surged 75% to $409 million. Theatrical distribution revenues in particular jumped more than 100% to $626 million from $304 million in the prior year quarter. [1] Disney’s impressive run at the box-office appears to be far from being over, as the upcoming slate for 2014 is studded with popular titles such as Need For Speed, Captain America: The Winter Soldier, Muppets Most Wanted, Angelina Jolie as Maleficent, Planes: Fire and Rescue and Guardians of the Galaxy.

Media Networks And Theme Parks Aid Overall Growth

Disney’s Media Networks saw steady growth in the December quarter with revenues increasing by 4% to $5.29 billion and operating income up 20% to $1.45 billion driven by higher affiliate fees, which increased by 5% due to higher contractual rates at ESPN. [1]

ESPN contributes close to 35% to Disney’s value, according to our estimates. The network saw 10% gain in advertising revenue during the quarter due to higher rates and an increase in units sold, partially offset by lower ratings. The sports network also benefited from the absence of losses at ESPN’s U.K. business, which was sold in the fourth quarter last year. [2]

Theme parks continued to show steady growth, especially in the U.S.The  Theme Parks and Resorts division contribute around 23% to Disney’s value, according to our estimates. During the December quarter, revenues in this segment increased by 6% to $3.60 billion and the operating income jumped 16% to $671 million, reflecting higher average guest spending primarily due to higher average ticket prices and food, beverage and merchandise spending. [1] Disney continues to benefit from investments at Walt Disney World and the Disneyland Resort. However, in the second quarter, the company expects $45 million in operating income moving out to Q3 as Easter holiday will fall entirely in Q3 this year. [2]

Interactive Media Sees Growth From Infinity

The Interactive Media division continued to benefit from its new game – Infinity, launched on August 18, 2013. The game allows players to mix and match popular Disney and Pixar characters in self-constructed video game adventures. The company has already sold 3 million units so far and the game was also ranked one of 2013’s ten best-selling games in the U.S. [4] Infinity is a part of Disney Interactive, which swung to a profit of $16 million in the September quarter from a loss of $76 million in the prior year period, primarily due to the success of the new video game. [1] Revenues in the December quarter increased by 48% to $326 million and operating income was $55 million as compared to $9 million in the prior year quarter. [1] However, the division may report loss in the second quarter of fiscal 2014, primarily due to the schedule of game releases. In Q2, Disney is not releasing any big games. [2]

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Notes:
  1. Disney’s SEC Filings [] [] [] [] [] []
  2. The Walt Disney Company’s CEO Discusses F1Q 2014 Results – Earnings Call Transcript, Seeking Alpha, Feb 5, 2014 [] [] [] []
  3. Frozen, Box Office Mojo []
  4. Disney Infinity’ Scores a Touchdown with Three Million Starter Packs Sold and “Big Game” Downloadable Toy Box, Disney Post, Feb 1, 2014 []