The Walt Disney Company (DIS, Financial) recently revealed its second-quarter results for fiscal 2015 with a seventh consecutive quarter of estimate-beating earnings. The company logged 11% year-over-year growth in adjusted EPS to $1.23 a share, comfortable beating the consensus estimate of $1.11 a share. The company, which competes with Twenty-First Century Fox Inc. (FOXA, Financial) and Times Warner Inc. (TWX, Financial) in the diversified entertainment industry, saw its shares climbing to a new 52-week high of $113.30 during pre-market trading on the back of the upbeat results.
Studio entertainment segment drags revenues
Walt Disney saw its Q2 2015 revenues climbing 7% year over year to $12.46 billion on the back of growth at its Parks and Resorts, Media and Consumer Products segments that helped beat the consensus estimate of $12.25 billion for the quarter. Segmentwise, Walt Disney reported 13% year-over-year growth in revenues to $5.8 billion at its Media division, driven by 11% growth to $4.03 billion in Cable Networks revenues and a 19% growth to $1.78 billion in broadcasting revenues. Concurrently, the company’s Parks and Resorts division logged % year-over-year growth to $3.7 billion for the quarter while the same of merchandise related to the box-office hits Frozen and Avengers pulled up revenues at the Consumer Products division by 10% compared to the year-ago quarter to $971 million.
However, revenues from the Studio Entertainment division saw a 6% year-over-year decline to $1.68 billion, owing primarily to the tough comparison to the prior-year quarter when Walt Disney released its record-breaking hit – Frozen. The company’s March 2015 release –Cinderella – failed to recreate the box office magic of Frozen. At the same time, revenues from Disney’s interactive gaming segment also saw a fall of 12% compared to the year-ago quarter to $235 million, owing to fewer number of theatrical releases during the quarter that in turn resulted in reduced sales of mobile game titles.
The company also logged 4% year-over-year growth in operating income $3,482 million, with maximum gains coming in from the Consumer Products division. However, although operating income at the domestic Parks and Resorts segment increased 24% year-over-year to $566 million during the quarter, the company saw a fall in operating income at its international properties owing to decline in footfalls and higher operating expenses. Operating income from Walt Disney’s Media and Studio Entertainment segments also saw a year-over-year decline, while at the Interactive gaming segment, operating income grew on the back of reduced product development and marketing spending.
The road ahead
Although Walt Disney’s Studio Entertainment segment failed to impress during the quarter, the company has a strong movie line-up for the remainder of fiscal 2015. While the impact from Frozen is likely to start cooling, now that the movie has been out more than a year, growth rates are likely to witness a temporary slowdown. However, the company’s latest release under the Marvel banner –Â Avengers: Age of Ultron – has already generated $191.2 in North America during its opening weekend, making it the second biggest box office release of all time in the domestic market. Further, with more than $623 million in global box office collections in the first two weeks, the movie is set to break through the $1 billion mark with its impending release in the Chinese market.
Walt Disney’s other releases for the fiscal include Pixar’s Inside Out, Marvel’s Ant-Man and Disney’s own Star Wars: The Force Awakens. Moreover, the company’s theme parks are likely to see greater footfalls with the onset of summer, which is a peak travel season. Consequently, both investors and experts are optimistic about Walt Disney’s performance in the third quarter as well as the full fiscal 2015. Consensus estimates peg the company’s Q3 earnings at $1.42 a share.
Final thoughts
Walt Disney reported yet another quarter of estimate-beating earnings despite the absence of a box office hit comparable to the success of its prior-year quarter’s release – Frozen. The company’s majority gains came in from the Consumer Products division that is still reaping profits from sales of Frozen–related merchandise, while merchandise related to Avengers has also recently joined the fray. While the company’s diversified operations helped cushion the slowdown at its Studio Entertainment and Interactive Gaming divisions, its latest box office release Avengers: Age of Ultron seems to be on the verge of breaking the $1 billion ceiling in revenues. Further, Walt Disney has a strong lineup of movies for the remainder of the fiscal 2015. Experts are looking at an average annual earnings growth rate of 10.88% over the next five years for Walt Disney. Consequently, the Walt Disney stock currently carries a "buy" rating.
