Walt Disney - Investors Are Cautious As Company Warns For Soft First Quarter

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Shares of Walt Disney (DIS) are falling up to 3% in after hours trading on Thursday. The worldwide entertainment company reported its fourth quarter results of its fiscal year of 2012 after the close.

Fourth Quarter Results

Walt Disney reported fourth quarter revenues of $10.78 billion, up 3.4% on the year. Revenues fell short of analysts consensus of $10.92 billion.

Net income rose 14.4% to $1.24 billion, with diluted earnings per share being up 17% on the year to $0.68 per share. Earnings came in line with analysts expectations.

Disney reported full year revenues of $42.3 billion. The company net earned $5.7 billion, or $3.13 per diluted share. Full year earnings included a $0.06 per share gain related to one-time items. This includes a gain related to the acquisition of UTV Software Communication and an unexpected recovery of a receivable from Lehman Brothers, among others.

Little over a week ago, Disney announced the $4.05 billion acquisition of Lucasfilm, known from its Star Wars movies.

CEO and Chairman Robert A. Iger commented on the results, "Fiscal 2012 was a great year creatively, financially and strategically, resulting in record revenue, net income, and earnings per share. The addition of Lucasfilm will further fuel Disney's creative engine across our company to create additional value for our shareholders and we're confident the Company is well positioned to continue our strong performance and growth."

Segment Information

Cable Networks

The media network division reported a 2% increase in quarterly revenues to $4.88 billion. Operating income rose by 7% to $1.51 billion driven by a 9% increase in Cable Networks operating earnings. Operating earnings came in at $1.38 billion driven by strength at ESPN, partially offset lower income at Disney Channels. Broadcasting earnings fell by 4% to $192 million on higher equity losses at Hulu.

Park and Resorts

The park and resort division reported a 9% increase in quarterly revenues to $3.4 billion. General strength in park and resorts was offset by weakness in Disneyland Paris. Operating income rose by 18% to $497 million on the back of higher guest spending, higher attendance and higher room rates.

Studio Entertainment

Revenues for the studio entertainment division fell by 4% in the final quarter to $1.40 billion. The division released fewer theatrical releases which impacted revenues. Operating income fell by 32% to $80 million on the back of marketing costs for Frankenweenie and higher write-downs.

Consumer Products

Revenues for the consumer product division rose 8% to $883 million. Operating earnings were up 29% to $267 million on the result of strong licensing and retail store performance. Sales were driven by strong performance of Spider-Man, Avengers, and Minnie and Mickey merchandise.


Walt Disney warned that results for the first quarter of its fiscal 2013 will be under pressure. Sport rights costs will increase by some $170 million, while home video sales are expected to fall on a tough comparison given the strength of "Cars 2", a year earlier. Yet, the company remains optimistic for solid earnings growth for the year. Disneyland will enter in a transition year according to CEO Iger, which will lead to more compelling growth in the future.


Walt Disney ended its fiscal year of 2012 with $3.4 billion in cash and equivalents. The company operates with $14.3 billion in short and long term debt, for a net debt position of $10.9 billion.

Factoring in a three percent decline in after hours trading, the market values Walt Disney at $87 billion. This values the firm at 2.1 times annual revenues and 15-16 times annual earnings.

Walt Disney pays a semi-annual dividend yield of $0.60 per share, for an annual dividend yield of 1.2%.

Investment Thesis

Year to date, shares of Walt Disney have risen almost 31%. Shares gradually rose from levels around $37 in January and peaked at $53 in September. Strong operating results propelled shares gradually higher during the year. In after hours trading, shares are exchanging hands at $49 per share.

Revenues of Walt Disney rose from $37.8 billion in 2008 to $42.3 billion in 2012. The company boosted its net income from $4.4 billion to an estimated $5.7 billion. Despite the short term pressure, shares of Walt Disney are trading near all time highs.

Over the past years, Walt Disney has shifted its focus towards the production of movies. As the company was not able to produce blockbusters in its own movie division, the company made numerous acquisitions. The company acquired Marvel known from its blockbuster Avengers. Furthermore Robert Iger acquired Pixar, the former company of Steve Jobs. These acquisitions were followed by the $4.05 billion deal with Lucasfilm last week.

Investors are not too happy with the latest results. The disappointment is driven by lower performance of its network ABC. Lower ratings are seen across the television landscape this year, with exception of NBC, owned by Comcast (CMCSA). The rise of digital television and more online offerings are pulling viewers away from traditional media outlets.

I remain bullish on the long term prospects for the company, despite the subdued outlook for the first quarter of its fiscal 2013. Walt Disney has diversified operations, strong assets and stable long term cash flows, making it an ideal long term investment.

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.