The Walt Disney Company: Confident About The Future.

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 |  About: The Walt Disney Company (DIS), Includes: NFLX
by: Vivek Gupta

Powered by the decent revenue growth and the margin improvement in the four of its five reportable segments Walt Disney (NYSE:DIS) announced excellent results for the quarter ended September 30, 2013.

As said by Robert A. Iger, Chairman and CEO, The Walt Disney Company:

"We're extremely pleased with our results for Fiscal 2013, delivering record revenue, net income and earnings per share for the third year in a row."

"It was another great year for the Company, both creatively and financially, and we remain confident that we are well positioned to continue our strong performance and drive long-term shareholder value."

Results:

For the latest quarter, Disney reported revenues of $11.6 billion, up 7% from $10.8 billion a year earlier, and net profit of $1.39 billion, up 12% from $1.24 billion a year earlier. On per share basis, the earning per share stood at $0.77, up 13% from $0.68 during the same period last year.

The results are excellent on all accounts.

Segment results:

Click to enlarge

  • Media Networks:

Media Networks segment generated 43% of the company's revenue for the last quarter. The segment generated the revenue of $4.9 billion, up 1% from $4.8 billion a year earlier, and operating profit of $1.4 billion, down 8% from $1.5 billion a year earlier. The decrease in the operating income was primarily on the account of:

"reduction of $172 million in the recognition of previously deferred ESPN affiliate fee revenues related to annual programming commitments."

Excluding the impact of the above mentioned issue, ESPN's operating income would have been up in the quarter due to the higher affiliate revenue and increased advertising revenue, which showed the growth of 9%.

Media Networks is the largest segment for the company. Considering the scale of the segment, the segment's revenue growth is good. The increase in the affiliate fee due to the higher contractual rate at ESPN and the domestic Disney Channels shall continue to effect the company positively in the near future.

  • Parks and Resorts:

Parks and resort segment delivered a solid performance during the quarter and generated 32% of the company's revenue for the quarter. The segment generated the revenue of $3.7 billion, up 8% from $3.4 billion a year earlier, and operating profit of $571 million, up 15% from $497 million a year earlier.

The domestic operations led the growth while Disneyland Paris lagged behind. The domestic operations were boosted by the increased guest spending at Walt Disney World and Disneyland Resort, as the per-capita spending was up an impressive 9% on the higher ticket prices and food and beverage spending. The average per room spending at its domestic hotels was up 4% compared to the prior year.

Parks and resort is the second largest segment of the company. The company has been investing heavily in the segment for the last many years, which is showing its positive effect on the revenue and margins of the segment. In FY 2014, the effect of these investments shall continue to show its positive effect, with the expected opening of Shanghai Disneyland and rollout of MyMagic+.

  • Studio Entertainment:

For the latest quarter, Studio Entertainment segment generated the revenue of $1.5 billion, up 7% from $1.4 billion a year earlier, and operating profit of $108 million, up 35% from $80 million a year earlier. The results were primarily boosted by the strong performance of Monsters University and partially offset by the impact of the write-down of The Lone Ranger.

The success of the company's movies is the key factor behind the good performance of the segment. Many popular titles are scheduled to be released in the near future. The quantum of the success of the titles will determine the future outcome of the segment.

  • Consumer Products:

Consumer Products segment generated the revenue of $1billion, up 14% from $883 million a year earlier. The operating profit was up 30% from a year earlier. The growth in the operating income was primarily due to the gains in Merchandise Licensing. Some key properties, including Planes, Monsters University and Disney Junior saw the strong demand. The increase also reflects the inclusion of Star Wars results.

The segment yields the highest margins for the company. The success of the segment depends on the popularity of the characters and movies that belongs to the company. The rising popularity of Disney Junior shall make it sure that the company get steady revenues from the segment.

  • Interactive:

Due to the successful launch of Infinity, the segment reported a phenomenal quarter with over 100% year-over-year increase in the revenue, which touched $396 million as compared to $191 million during the same period last year. The operating results improved from a loss of $76 million to an income of $16 million.

The Infinity is the game changer for the segment. The long-term success of the segment will depend on how well Infinity will carry-on with its initial success.

Margins growth:

For the quarter, the most positive outcome for the company is the operating margins that showed an exceptional improvement (year on year). Four of its five reportable segments showed the marked improvement. (see the table below):

Q4 FY 2013

Q4 FY 2012

Change

Media Networks

29.15%

32.19%

-3.03%

Parks and Resorts

15.37%

14.51%

0.86%

Studio Entertainment

7.17%

5.71%

1.47%

Consumer Products

34.56%

30.24%

4.32%

Interactive

4.04%

-

Positive Turnaround

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Conclusion:

The company reported another record quarter primarily due the launch of Infinity, gains in Merchandise Licensing, strong performance by Walt Disney World and also due to the success of Monsters University. The results once again signify the importance of the company's past capital investments as well as the acquisition-related investments.

As said by the company:

"over the last several of years we've made a number of major acquisitions and capital investments to drive growth and create shareholder value, now with some of those investments have been completed and the actuations are fully integrated their positive impact is clear in our results"

The company is moving forward with a vision to grow revenues along with the margins. One of the key growth initiatives, which the company expects to come into play in the coming months is MyMagic+.

  • MyMagic+

MyMagic+ is the unique initiative by the company, which is entirely focused on the customer experience as it enhances the quality of the time that the customers spend at its parks. In simple words the company hopes that with this initiative it will give the customers much more time for entertainment and thereby offers the company more business opportunities. The initiative is very much in the early stages of rollout and if meets the expected success, then will be a big positive for the company in the long-run.

  • More focus on Consumer Products:

The company wants to carry-on with its success in the consumer products segment. As mentioned by the company:

"Disney Junior toys are prominently featured on the retailers hot toy lists and our top four retail partners are planning to double Disney Junior shelf space compared to last year."

Consumer product is a high margin business and the increased focus of the company on the segment is good news for the future of the company.

  • Other developments:

The company also announced the two developments that will affect the company's business in 2015. One the company has scheduled the official release date for Star Wars Episode VII on December 18, 2015. The second announcement is its deal to create multiple live action series and a mini series event exclusively for Netflix (NASDAQ:NFLX), beginning in 2015.

The company is confident about 2014 with the busy schedule of upcoming movies and the opening of Shanghai Disneyland. As mentioned by the company:

"We're well positioned for continued growth in 2014"

The early success of MyMagic+ will be an added bonus.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.