Disney Finds Cable Is Way To Beat Street


The Walt Disney Company seems to do it every time. Once again its quarterly numbers beat Wall Street expectations. And this time they overcame the economic downturn and the pullback in consumer spending.

Growth at ESPN and strength at the theme parks headlined the news. But the reality that Disney is not entirely immune to the economy led the stock to trade lower after hours and in early trading after the bell.

Earnings per share from continuing operations came in at 62 cents, a penny more than expected, and up from 58 cents a year ago (including one time gains, it was 66 cents a share). Meanwhile revenue grew 2 percent to $9.24 billion, double the growth analysts' forecast. (The company bought back $1 billion in shares per quarter, which helps the per-share numbers).

The company's media networks division grew 8 percent with its cable networks driving the company's growth. ESPN's profit grew nine percent, and revenue up more than 10 percent, as the company brings in higher revenue and higher cable affiliate payments. On the other hand, ABC is hurting, suffering from weakness in automotive, financial and consumer electronics, though costs were lower in the past quarter due to production shifts from the writer's strike. In their defense, on the conference call the company pointed out that advertising represents only 20 percent of their revenue, less than many of their competitors.

But the real focus was the theme parks that remained healthy despite the high cost of fuel and rising cost of airplane tickets. The parks posted a five percent increase in revenue and three percent growth in operating profit. This despite the fact that the Easter holiday, which generates more traffic fell in the previous quarter.

CEO Bob Iger says if it had fallen in the third quarter as it did last year, parks attendance would have been flat. How did the parks do it? It's not just foreign tourism with Iger saying only 25 percent of visitors to the US parks are from overseas. The company says it's revamped the pricing mix at its parks, making the majority of its hotel options lower priced, has helped it be more affordable in this economy. So here's an optimistic outlook for consumer spending: not only is booking flat this past quarter compared to last year, but booking for the next quarter is actually up.

The real weakness was in the movie studio, where revenue dropped 19 percent to $1.43 billion. The issue was tough comparisons to last year's record-breaking "Pirates of the Caribbean: At World's End." It didn't help that Disney's big movie of the quarter "The Chronicles of Narnia: Prince Caspian," was disappointing, especially compared to the first Narnia film. And Disney split the film with Walden Media, so it only reaped half the revenues. But on the upside, Pixar's "Wall-E" is performing quite well, and only one day of the film's release was included in this fiscal third quarter.

Quality content continues to sell, despite the economic downturn, so we'll see if the consumer can hold up. No matter what, the company is going to have some very tough comps in 2009. Disney has consistently outperformed expectations under Bob Iger, I'll be interested to see what he has up his sleeve next.

Video: analysis of Disney quarterly results.

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