Disney Posts 16% Earnings Growth Led By The Studio’s Success At The Box-Office And The Theme Park Operations

Disney (NYSE:DIS) recently reported its earnings for Q4 fiscal 2014 with 7% revenue growth and a 16% jump in adjusted earnings to $0.89 per share. ^[1] The earnings were primarily driven by a significant growth in the company’s studio entertainment division, led by the success of Guardians of Galaxy and Maleficent. Theme parks benefited from higher attendance and guest spending, which boosted the company’s bottom line. Cable networks saw a 1% decline in operating income due to higher programming costs at ESPN. Overall, Disney once again posted good set of numbers with solid growth at studio and theme parks.

We estimate revenues of around $48.4 billion for Disney in calendar year 2014 and EPS of $4.00. We currently have a $94 price estimate for Disney’s shares, which we will soon update to reflect the recent quarterly earnings.

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Studio Entertainment Continues To Drive Earnings

Revenues at the Studio Entertainment division jumped 18% to $1.78 billion while the operating income surged more than 100% to $254 million, reflecting the benefits from the success of Guardians of the Galaxy and Maleficent in the current quarter as compared to Monsters University and The Lone Ranger in the prior year period. ^[2] Disney has so far seen a fantastic 2014 driven by the wide success of Frozen, Captain America: The Winter Soldier, Maleficent and Guardians of Galaxy. The studio has grossed close to $3 billion at the box-office this year. ^[3] We estimate the studio revenues to be over $6.5 billion for the calendar year 2014. An estimated EBITDA margin of 19% will translate into EBITDA of over $1.2 billion by end of the year. We believe Disney will continue to ride high with its studio operations in the coming years, driven by a powerful lineup including, Star Wars: The Force Awakens, Avengers: Age of Ultron, Ant Man, Captain America 3, Thor: Ragnarok, Toy Story 4 and a new movie from Pirates of the Caribbean franchise.

Higher Attendance And Guest Spend Boosts Theme Parks Operations

Theme parks continued to show steady growth in the U.S. Overall revenues for the September quarter were up 7% while the operating income jumped 20% to $687 million. This can be attributed to a 6% growth in guest spending and 4% jump in attendance at its theme parks. The company said that the MyMagic+ new ticketing system had a positive contribution to the operating income and trends look encouraging. ^[1] Theme parks have been growing steadily for Disney over the past few years and we expect this trend to continue in the near term as well as in the long run, driven by continued growth in attendance and guest spending amid an economic recovery and the introduction of new rides that Disney brings into its parks. Disney will bring Star Wars to its theme parks and it is also developing Avatar Land in Florida. One of the biggest theme park projects for Disney is the Shanghai resort, which will be operational towards the end of 2015. These new attractions will boost the attendance at its theme parks and drive growth in the coming years. Our revenue forecast for calendar year 2014 currently stands at $15.23 billion while we expect the revenues to be northward of $25 billion by the end of our forecast period, driven by the benefits from the new attractions and the Shanghai resort.

Profits At Media Networks Flat Amid Higher Programming Costs at ESPN

Media Networks saw 5% revenue growth in the September quarter while the segment operating income remained flat at $1.44 billion. The operating income was lower due to higher programming cost at ESPN driven by contractual rate increases for some of the sporting events including, Major League Baseball, NFL and college football rights. ^[2] Looking at broadcasting, revenues and operating income grew in low single-digits primarily driven by higher affiliate revenues. However, softer ratings led to a low single-digit drop in advertising. The company said that ABC Network is currently running 12% above upfront levels. ^[1] It must be noted that ABC is seeing a great start to the fall season with 7% growth in viewership. ^[4] We estimate the overall media networks revenues to be around $21.5 billion in calendar year 2014, reflecting growth of 4% over the prior year.

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1. The Walt Disney’s (DIS) CEO Bob Iger on F4Q 2014 Results – Earnings Call Transcript, Seeking Alpha, Nov 6, 2014 [↩] [↩] [↩]
2. Disney’s SEC Filings [↩] [↩]
3. 2014 Worldwide Grosses, Box Office Mojo [↩]
4. ABC Shows Early Strength in Fall Ratings Race, The Wall Street Journal, Oct 26, 2014 [↩]