Disney: No Magic Kingdom (DIS)

| About: The Walt (DIS)

For the quarter ending April 1, Disney's (NYSE:DIS) revenues inched up from $7.8 billion a year ago to $8 billion this year. For the six month period ending April 1, revenue increased only 2% to $16.9 billion. Segment operating income (segment operating income includes equity in the income of investees), a non-GAAP measurement the company uses, rose for the quarter to $1.4 billion from $1.3 billion last year and for the six months from $2.7 to $2.8 billion. (See full conference call transcript.)

By segment, the big growth was at the company's media networks, including both broadcast and cable. For the quarter, revenue in this area rose 18% to $3.6 billion and segment operating income was up 20% to $969 million. Broadcasting operating income rose from $38 million last year to $160 million. ESPN also did well.

Parks and resorts had a modest gain from $2.1 billion in the quarter a year ago to $2.3 billion this year, and segment operating income rose even faster from $183 million to $214 million.

The company's studios turned in a disaster of a performance with revenue dropping from $2.3 billion to $1.8 billion and segment operating income down 39% from $241 million to $147 million.

Disney's interest expense rose from $141 million to $187 million mostly due to debt on Hong Kong Disneyland.

The star of the company's report was free cash flow which is up to $1.7 billion for the six months ending April 1 from $355 million last year. Most of this was due to cash provided by operations. However, the company remains saddled with $10.5 billion in debt.

The market reacted by rewarding Disney with a 52-week high of $29.60 and in the pre-market shares hit $29.95. The low for the period is $22.89.

Part of the rise was in anticipation that Disney might be "firing on all cylinders" in the future, as Sanders Morris Harris analyst David Miller put it in an interview with Reuters.

Gone are the days of the $15 stock price in 2002 and 2003. But, the stock's five year performance still trails the Dow, and the question is whether the stock can rise much higher if the company's revenue refuses to grow at more than a snail's pace.

Earnings per share will be hit by 10% over the next two years due to the Pixar acquisition. And, Disney is still in the earliest stages of experimenting with digital and online distribution of its products. It will be a number of years before iPod and online distribution of the company's content match the possible erosion of consumers spending time on the internet instead of in front of their TVs or at the movies. And, piracy issues will bedevil the industry for years to come.

With new management in place and the Pixar acquisition done, the lows of the past may be behind Disney, but the share price reaching much higher may require more than just improved results from the company's studios.

DIS 1-yr chart:

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.

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