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The Science of Hitting
The Science of Hitting
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Disney: Q4 and Full Year Results

November 11, 2011 | About:

The Walt Disney Corporation (DIS) reported Q4 2011 results on Thursday; here are some of the highlights from the conference call and the SEC filing:

Sales in the quarter increased 7% to $10.43 billion from $9.7 billion in Q4 2010; for the full year, sales increased by the same percentage to $40.9 billion.

In the Media Networks segment, which is primarily dependent upon domestic broadcasting (ABC) and cable networks (ESPN & The Disney Channel), sales increased 9% in the quarter to $4.8 billion; for the full year, sales increased by 9% to $18.7 billion. Operating income in the segment was up 20% in both Q4 and for the full year, to $1.46 billion and $6.15 billion, respectively.

In the Media Networks segment, Disney owns a controlling stake in ESPN, a brand with an impenetrable moat that has brought billions into the company’s coffers; here is what Chairman and CEO Robert Iger had to say about the franchise and its continuing domination:

“ESPN posted a record number of viewers for the fourth consecutive year and remains the leading destination for sports. ESPN.com has captured 70% of fans on mobile sports sites, and in September, ESPN.com set a record for its most unique users ever of 52 million. ESPN was able to grow its viewership and expand its content offerings to subscribers while showing discipline and acquiring sports rights. Our recently signed long-term agreements reached for the NFL, Pac-12 and Wimbledon ensures ESPN will continue to offer the broadest array of sports coverage for fans to access wherever they watch sports.”

In the Parks & Resorts segment, sales increased 11% in the quarter to $3.13 billion; for the full year, sales were up 10% to $11.8 billion. Operating income in the segment came in at $421 million in the quarter and $1.55 billion for the year, an increase of 33% and 18%, respectively.

In the Studio Entertainment segment, sales decreased 8% in the quarter ($1.46 billion) and 5% for the full year ($6.35 billion). For the quarter, operating income increased 13% to $117 million, but declined by 11% for the full year to $618 million.

In the Consumer Products segment, sales were up 12% in the quarter to $816 million and 14% for the full year to just over $3 billion. Operating income in the segment was up 13% in the quarter to more than $200 million and 21% for the year to $816 million.

In the final segment, Interactive Media, sales were up 19% in the quarter ($223 million) and 29% for the full year to just shy of $1 billion. The operating loss in the quarter declined 10% to $94 and 32% for the year to just over $300 million.

For the company as a whole, operating income increased 23% in the quarter to more than $2 billion and 16% for the year to $8.8 billion. EPS for the year was $2.52, an increase of 24% from the $2.03 reported in 2010.

Cash from operating activities increased 6.3% for the year to just under $7 billion; however, due to a $1.4 billion increase in CapEx, the full year free cash flow decreased by more than $1 billion to $3.4 billion.

In regards to the increase in capital expenditures, here is Mr. Iger had to say:

“Our fiscal 2011 results validate our strategic priorities and demonstrate we can grow our earnings in the near term while continuing to invest for long-term shareholder value. Given the challenging economic environment this year, I'm particularly proud of our excellent management team, which has consistently delivered on our strategy, creating high-quality content, expanding our platforms and growing our iconic brands and assets worldwide. Disney's collection of strong brands is unparalleled in the media and entertainment space in the U.S. And in 2011, we made significant progress in expanding our footprint in 3 large rapidly developing markets, Russia, China [where work has begun on the Shanghai Disney Resort] and India [where to company is in the process of acquiring of one of the country's premier media and entertainment companies].”

The market was impressed by the results, and pushed the stock nearly 6% higher on the day; DIS shares currently trade at $36.70 per share, roughly 14.5 times the full year EPS of $2.52.

About the author:

The Science of Hitting
I'm a value investor with a long term focus.

As it relates to portfolio construction, my goal is to make a small number of meaningful decisions. In the words of Charlie Munger, my preferred approach is "Patience followed by pretty aggressive conduct." I run a concentrated portfolio, with a handful of equities accounting for the majority of my portfolio (currently two). In the eyes of a businessman, I believe this is adequate diversification.

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