3 Things Not To Overlook From Disney's Earnings

Feb.20.12 | About: The Walt (DIS)

The Walt Disney Company (NYSE:DIS) reported its Q1 2012 results Feb. 7 [see transcript]. Please don't miss three things when reviewing this earning report and other information: free cash flow, increased EPS, and acquisition of UTV. When considering that Disney did not significantly increase its overall revenue, Disney must be managing itself well to create a cash flow surplus and outperform EPS expectations. At the same time, Disney is increasing its breadth of content, international exposure, and ability to produce content with the anticipated acquisition of a controlling interest in UTV.

Disney presented its Q1 2012 results, which are listed on Disney's website, and set forth on the very front page the figures which form the bases for the views expressed herein.

Overlooked Item #1: Examine carefully, and you will see that Disney increased its free cash flow by more than 100% from the same quarter last year: from a deficit of $94 million to a surplus of $1.1 billion USD. Cash is king and free cash flow is liquidity. Liquidity allows a company to make investments and/or buy back shares as Disney is doing - actions that tend to generate better value for shareholders. As compared to the same quarter last year, Disney produced a free cash flow even though it did not have a significant overall revenue increase. Simply said, Disney made better use of its resources, which points towards better management and/or better implementation of strategies.

Overlooked Item #2: Disney beat the Street's anticipated earnings per share with .80 versus the expected .71 and/or .78. Disney has beaten analyst EPS projections, when counting this reporting period, for the last three periods. Disney has outperformed expectations set by financial analysts who earn their living following companies. Disney is taking care of business, quietly and without fanfare and appears to be managing its company in a manner that works with the investment community but does not register with the financial analysts and/or their market modeling. Disney is surprising the analysts with profitability which reaffirms its management and implementation of its management strategies.

Overlooked Item #3: Disney apparently acquired a controlling interest of 48.02%, in UTV through a subsidiary, The Walt Disney Company (Southeast Asia) Pte, Ltd. as set forth in the UTV website shareholder pattern statement as of December 30, 2011 which states both the number of shares and percentage holding held by Disney's subsidiary. UTV is a leading producer of television and film in India. Please see the UTV website which announced the film mentioned below as well as describing the strategic business units of film, television, and gaming. UTV owns and operates Indiagames, believed to be India's leading mobile gaming company. Through this acquisition, Disney may and likely will become a major presence in India TV and India's leading film studio. UTV has a catalog of films and may readily make additional content. Have you ever seen a Bollywood movie? Indian cinema is evolving, making better inroads into the American market, and India is a large market. UTV debuted a movie on February 10, 2012 which was released in certain movie theaters in the United States on the very same day. The author had opportunity to see this debut in the United States on the same day as announced by UTV on its website.

Disney did not increase revenue as much as expected; however, don't overlook the following: Disney has free cash flow, has three consecutive reporting periods of better than expected EPS results and has acquired a substantial interest in a leading producer of film and TV in India. Disney appears to be implementing its market strategies and managing its assets well.

Disclosure: I am long DIS.