Disney Earnings Fail to Impress but Signal Solid Growth

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Walt Disney Co. (NYSE: DIS) reported fiscal third-quarter financial results after the markets closed on Tuesday. Despite earnings beating estimates, investors initially just gave back the gains on the day. The initial impression from market analysts is that these earnings are fundamentally sound, business is good and that the company can stand to grow from here in multiple avenues, whether it is in the theme parks, on the silver screen or expanding its media business through M&A.

The company posted $1.62 in earnings per share (EPS) on $14.28 billion in revenue. The consensus estimates from Thomson Reuters called for $1.61 in EPS on $14.15 billion in revenue. The same period from last year had $1.45 in EPS on $13.1 billion in revenue.

Separately from the earnings, Disney announced that it is acquiring a 33% stake in BAMTech, a leading technology services and video streaming company previously formed by Major League Baseball (MLB). Under the terms of the transaction, Disney will pay $1 billion in two installments, now and in January 2017, and has the option to acquire majority ownership in the coming years. As part of the transaction, BAMTech will become a key partner for Disney in the delivery and support of streaming video and other digital products from Disney|ABC Television Group and ESPN.

In terms of its segments the company reported:

  • Media Networks revenues for the quarter increased by 2% to $5.9 billion and segment operating income decreased by $6 million to $2.4 billion.
  • Broadcasting revenues for the quarter rose by 5% to $1.7 billion, and operating income fell 6% to $282 million.
  • Parks and Resorts revenues for the quarter jumped 6% to $4.4 billion and segment operating income rose 8% to $994 million.
  • Studio Entertainment revenues for the quarter increased 40% to $2.8 billion and segment operating income increased 62% to $766 million.
  • Consumer Products & Interactive Media revenues for the quarter decreased 1% to $1.1 billion and segment operating income fell by 7% to $324 million.

Bob Iger, Chairman and CEO of Disney, commented:

Disney delivered another quarter of double-digit EPS growth, and we are thrilled with our continued performance. Our results are evidence that our asset mix is strong, as is our ability to execute in ways that enhance the Disney brand and create value for our shareholders while we invest for future growth.

Cash provided by operations for the first nine months of the fiscal year increased by 24% to $9.4 billion compared to the same period last year. On the books, Disney’s cash and cash equivalents totaled $5.23 billion at the end of the quarter, versus $4.27 billion at the end of fiscal 2015.

Shares of Disney closed Tuesday up 1% at $96.67, with a consensus analyst price target of $109.37 and a 52-week trading range of $86.25 to $120.65. Following the release of the earnings report, the stock was initially down 1% at $95.75 in the after-hours trading session.