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Category: Stock Market and Walt Disney
Date: 26 August 2019 Stock Price: $133.76 We take a look at entertainment giant Walt Disney's financial results for the 3r quarter of their 2019 financial year. With the US economy booming are consumers spending more on entertainment for the benefit of companies such as Walt Disney?
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About The Walt Disney Company
The Walt Disney Company, together with its subsidiaries and affiliates, is a leading diversified international family entertainment and media enterprise with the following business segments: Media Networks; Parks, Experiences and Products; Studio Entertainment; and Direct-to-Consumer and International.
Media Networks is the primary unit of The Walt Disney Company that contains the company’s vast array of television networks, cable channels, associated production and distribution companies, and owned and operated television stations across two divisions – Walt Disney Television and ESPN.
Parks, Experiences and Products is the global hub that brings Disney’s stories, characters, and franchises to life through theme parks and resorts, cruise and vacation experiences, and consumer products—everything from toys to apparel, and books to video games.
For over 90 years, The Walt Disney Studios has been the foundation on which The Walt Disney Company was built. Today, the Studio brings quality movies, music and stage plays to consumers throughout the world. (Studios include Pixar- known for their animation movies) and Marvel Studios, 20th Century Fox and LucasFilms (Star wars movies)
Media Networks is the primary unit of The Walt Disney Company that contains the company’s vast array of television networks, cable channels, associated production and distribution companies, and owned and operated television stations across two divisions – Walt Disney Television and ESPN.
Parks, Experiences and Products is the global hub that brings Disney’s stories, characters, and franchises to life through theme parks and resorts, cruise and vacation experiences, and consumer products—everything from toys to apparel, and books to video games.
For over 90 years, The Walt Disney Studios has been the foundation on which The Walt Disney Company was built. Today, the Studio brings quality movies, music and stage plays to consumers throughout the world. (Studios include Pixar- known for their animation movies) and Marvel Studios, 20th Century Fox and LucasFilms (Star wars movies)
Financial overview of The Walt Disney Company latest results
Numbers we are interested in: (for the quarter)
- Services revenue: $ 18.022 billion (up from $ 13,143 billion for the same quarter of the previous year)
- Products revenue: $2.223 billion (up from $2.086 billion for the same quarter of the previous year)
- Total costs and expenses: $17.485billion (up from $11.305 billion for the same quarter of the previous year)
- Net income attributable to The Walt Disney Company (Disney): $ 1.760 billion (down from $ 2.916 billion for the same quarter of the previous year)
- Diluted earnings per share: $ 0.97 (down from $ 1.95 for the same quarter of the previous year)
- PE ratio: 17
- Diluted number of shares in issue: 1.814 billion (up from 1.498 billion for the same quarter of the previous year)
- Cash and cash equivalents: $ 6.728 billion
- Cash and equivalents per share: $3.70 (or 2.7% of the company's share price)
- Receivables: $15.673 billion (so money owed to the group makes up 7.48% of their total assets)
- Goodwill: $77.801 billion (more than double the $31.269 billion recorded back in September 2018)
- Dividend yield: 1.3%
The Walt Disney Company management commentary on the results and earnings guidance
BURBANK, Calif. – The Walt Disney Company today reported quarterly earnings for its third fiscal quarter ended June 29, 2019. Diluted earnings per share (EPS) from continuing operations for the quarter decreased 59% to $0.79 from $1.95 in the prior-year quarter. Excluding certain items affecting comparability(1), EPS for the quarter decreased 28% to $1.35 from $1.87 in the prior-year quarter. EPS from continuing operations for the nine months ended June 29, 2019 decreased to $5.98 from $6.81 in the prior-year period. Excluding certain items affecting comparability(1), EPS from continuing operations for the nine months decreased 15% to $4.75 from $5.60 in the prior-year period.
“Our third-quarter results reflect our efforts to effectively integrate the 21st Century Fox assets to enhance and advance our strategic transformation,” said Robert A. Iger, Chairman and Chief Executive Officer, The Walt Disney Company. “I’d like to congratulate The Walt Disney Studios for reaching $8 billion at the global box office so far this year--a new industry record--thanks to the stellar performance of our Marvel, Pixar and Disney films. The incredible popularity of Disney’s brands and franchises positions us well as we launch Disney+, and the addition of original and library content from Fox will only further strengthen our direct-to-consumer offerings.”
On March 20, 2019, the Company acquired Twenty-First Century Fox (21CF) for cash and the issuance of 307 million shares. Results for the current quarter and nine months reflect the consolidation of 21CF and Hulu LLC (Hulu) activities.
Cable Networks
Cable Networks revenues for the quarter increased 24% to $4.5 billion and operating income increased 15% to $1.6 billion. Higher operating income was due to the consolidation of 21CF businesses (primarily the FX and National Geographic networks) and an increase at ESPN, partially offset by a decrease at Freeform.
The increase at ESPN was due to higher advertising and affiliate revenue, partially offset by an increase in programming and production costs. Higher advertising revenue was due to increases in units sold and rates, partially offset by lower viewership. Advertising revenue was positively impacted by two additional NBA finals games. Affiliate revenue growth was driven by contractual rate increases, partially offset by a decline in subscribers. The increase in programming and production costs was due to contractual rate increases for MLB and NBA programming and new rights for boxing and mixed martial arts.
The decrease at Freeform was due to an increase in programming and production costs, partially offset by higher income from program sales. The programming and production cost increase reflected the timing of amortization and higher average cost of programming in the current quarter.
Broadcasting
Broadcasting revenues for the quarter increased 16% to $2.2 billion and operating income decreased 17% to $307 million. Lower operating income was due to decreases in ABC Studios program sales and network advertising revenue, partially offset by a decrease in programming costs, higher affiliate revenue and, to a lesser extent, the consolidation of 21CF businesses. The decrease in ABC Studios program sales was driven by the prior year sale of Luke Cage and lower sales of How to Get Away With Murder and Designated Survivor. The decrease in network advertising revenues reflected lower viewership, partially offset by higher rates. Lower programming costs reflected a decrease in the average cost of programming in the current quarter compared to the prior-year quarter, which included airings of Roseanne, as well as lower program cost write-downs
Parks, Experiences and Products
Parks, Experiences and Products revenues for the quarter increased 7% to $6.6 billion and segment operating income increased 4% to $1.7 billion. Operating income growth for the quarter was due to increases at our consumer products businesses and Disneyland Paris, partially offset by a decrease at our domestic parks and resorts. Results included a benefit from a shift in the timing of the Easter holiday. In the current year, the entire Easter holiday fell in the third quarter, while the third quarter of the prior year included only one week of the Easter holiday. The increase at our consumer products business was due to growth at our merchandise licensing and retail businesses. Growth at merchandise licensing was primarily due to higher revenue from merchandise based on Toy Story, partially offset by a decrease from Star Wars merchandise. The increase at our retail business was due to higher comparable store sales and online revenue. Higher operating income at Disneyland Paris was primarily due to higher average ticket prices, partially offset by labor and other cost inflation and lower attendance. The decrease in operating income at our domestic parks and resorts was due to higher costs and lower volume, partially offset by increased average per capita guest spending. Higher costs were driven by labor and other cost inflation and expenses associated with Star Wars: Galaxy’s Edge, which opened at Disneyland Resort on May 31. The decrease in volume was due to lower attendance, partially offset by higher occupied room nights. Guest spending growth was primarily due to higher average ticket prices and increased food, beverage and merchandise spending.
Studio Entertainment
Studio Entertainment revenues for the quarter increased 33% to $3.8 billion and segment operating income increased 13% to $792 million. Higher operating income was due to an increase in theatrical distribution results and lower film cost impairments at our legacy operations. These improvements were partially offset by a loss from the 21CF businesses and lower TV/SVOD and home entertainment distribution results at our legacy operations. The increase in theatrical distribution results was due to the performance of Avengers: Endgame, Aladdin, Captain Marvel and Toy Story 4 in the current quarter compared to Avengers: Infinity War, Incredibles 2, Black Panther and Solo: A Star Wars Story in the prior-year quarter. Operating results at the 21CF businesses reflected a loss from theatrical distribution driven by the performance of Dark Phoenix, for which we also recorded a film cost impairment, partially offset by income from TV/SVOD distribution. Lower TV/SVOD distribution results were due to sales of Star Wars: The Last Jedi and Thor: Ragnarok in domestic pay television in the prior-year quarter with no comparable titles in the current quarter. The decrease in home entertainment results was due to lower unit sales and net effective pricing reflecting the performance of Black Panther in the prior-year quarter compared to Captain Marvel in the current quarter.
Direct-to-Consumer & International
Direct-to-Consumer & International revenues for the quarter increased from $827 million to $3,858 million and segment operating loss increased from $168 million to $553 million. The increase in operating loss was due to the consolidation of Hulu, the ramp up of investment in ESPN+, which was launched in April 2018 and costs associated with the upcoming launch of Disney+. Results for the quarter also 5 reflected a benefit from the inclusion of the 21CF businesses due to income at the Fox and National Geographic international channels, partially offset by a loss at Star India. Commencing on March 20, 2019, 100% of Hulu’s operating results are included in the Direct-to Consumer & International segment as a result of our acquisition of a controlling interest in Hulu. Prior to March 20, 2019, the Company’s ownership share of Hulu results was reported as equity in the loss of investees.
“Our third-quarter results reflect our efforts to effectively integrate the 21st Century Fox assets to enhance and advance our strategic transformation,” said Robert A. Iger, Chairman and Chief Executive Officer, The Walt Disney Company. “I’d like to congratulate The Walt Disney Studios for reaching $8 billion at the global box office so far this year--a new industry record--thanks to the stellar performance of our Marvel, Pixar and Disney films. The incredible popularity of Disney’s brands and franchises positions us well as we launch Disney+, and the addition of original and library content from Fox will only further strengthen our direct-to-consumer offerings.”
On March 20, 2019, the Company acquired Twenty-First Century Fox (21CF) for cash and the issuance of 307 million shares. Results for the current quarter and nine months reflect the consolidation of 21CF and Hulu LLC (Hulu) activities.
Cable Networks
Cable Networks revenues for the quarter increased 24% to $4.5 billion and operating income increased 15% to $1.6 billion. Higher operating income was due to the consolidation of 21CF businesses (primarily the FX and National Geographic networks) and an increase at ESPN, partially offset by a decrease at Freeform.
The increase at ESPN was due to higher advertising and affiliate revenue, partially offset by an increase in programming and production costs. Higher advertising revenue was due to increases in units sold and rates, partially offset by lower viewership. Advertising revenue was positively impacted by two additional NBA finals games. Affiliate revenue growth was driven by contractual rate increases, partially offset by a decline in subscribers. The increase in programming and production costs was due to contractual rate increases for MLB and NBA programming and new rights for boxing and mixed martial arts.
The decrease at Freeform was due to an increase in programming and production costs, partially offset by higher income from program sales. The programming and production cost increase reflected the timing of amortization and higher average cost of programming in the current quarter.
Broadcasting
Broadcasting revenues for the quarter increased 16% to $2.2 billion and operating income decreased 17% to $307 million. Lower operating income was due to decreases in ABC Studios program sales and network advertising revenue, partially offset by a decrease in programming costs, higher affiliate revenue and, to a lesser extent, the consolidation of 21CF businesses. The decrease in ABC Studios program sales was driven by the prior year sale of Luke Cage and lower sales of How to Get Away With Murder and Designated Survivor. The decrease in network advertising revenues reflected lower viewership, partially offset by higher rates. Lower programming costs reflected a decrease in the average cost of programming in the current quarter compared to the prior-year quarter, which included airings of Roseanne, as well as lower program cost write-downs
Parks, Experiences and Products
Parks, Experiences and Products revenues for the quarter increased 7% to $6.6 billion and segment operating income increased 4% to $1.7 billion. Operating income growth for the quarter was due to increases at our consumer products businesses and Disneyland Paris, partially offset by a decrease at our domestic parks and resorts. Results included a benefit from a shift in the timing of the Easter holiday. In the current year, the entire Easter holiday fell in the third quarter, while the third quarter of the prior year included only one week of the Easter holiday. The increase at our consumer products business was due to growth at our merchandise licensing and retail businesses. Growth at merchandise licensing was primarily due to higher revenue from merchandise based on Toy Story, partially offset by a decrease from Star Wars merchandise. The increase at our retail business was due to higher comparable store sales and online revenue. Higher operating income at Disneyland Paris was primarily due to higher average ticket prices, partially offset by labor and other cost inflation and lower attendance. The decrease in operating income at our domestic parks and resorts was due to higher costs and lower volume, partially offset by increased average per capita guest spending. Higher costs were driven by labor and other cost inflation and expenses associated with Star Wars: Galaxy’s Edge, which opened at Disneyland Resort on May 31. The decrease in volume was due to lower attendance, partially offset by higher occupied room nights. Guest spending growth was primarily due to higher average ticket prices and increased food, beverage and merchandise spending.
Studio Entertainment
Studio Entertainment revenues for the quarter increased 33% to $3.8 billion and segment operating income increased 13% to $792 million. Higher operating income was due to an increase in theatrical distribution results and lower film cost impairments at our legacy operations. These improvements were partially offset by a loss from the 21CF businesses and lower TV/SVOD and home entertainment distribution results at our legacy operations. The increase in theatrical distribution results was due to the performance of Avengers: Endgame, Aladdin, Captain Marvel and Toy Story 4 in the current quarter compared to Avengers: Infinity War, Incredibles 2, Black Panther and Solo: A Star Wars Story in the prior-year quarter. Operating results at the 21CF businesses reflected a loss from theatrical distribution driven by the performance of Dark Phoenix, for which we also recorded a film cost impairment, partially offset by income from TV/SVOD distribution. Lower TV/SVOD distribution results were due to sales of Star Wars: The Last Jedi and Thor: Ragnarok in domestic pay television in the prior-year quarter with no comparable titles in the current quarter. The decrease in home entertainment results was due to lower unit sales and net effective pricing reflecting the performance of Black Panther in the prior-year quarter compared to Captain Marvel in the current quarter.
Direct-to-Consumer & International
Direct-to-Consumer & International revenues for the quarter increased from $827 million to $3,858 million and segment operating loss increased from $168 million to $553 million. The increase in operating loss was due to the consolidation of Hulu, the ramp up of investment in ESPN+, which was launched in April 2018 and costs associated with the upcoming launch of Disney+. Results for the quarter also 5 reflected a benefit from the inclusion of the 21CF businesses due to income at the Fox and National Geographic international channels, partially offset by a loss at Star India. Commencing on March 20, 2019, 100% of Hulu’s operating results are included in the Direct-to Consumer & International segment as a result of our acquisition of a controlling interest in Hulu. Prior to March 20, 2019, the Company’s ownership share of Hulu results was reported as equity in the loss of investees.
The Walt Disney Company (NYSE: DIS) stock price history
The image below shows The Walt Disney Company's share price for the last 5 years. And it has performed pretty well considering 5 years ago its stock was trading at around $90 a share, and currently its trading hands at $133.60 a share. The performance of the Marvel Studio over the last couple of years providing some spark for its share price, while ESPN seems to have been a drag on the group.
The Walt Disney Company (NYSE: DIS) stock valuation
Based on the group's latest financial result, the market they operate in and the competition they face in the entertainment sector in general against other content providers such as Netflix we value the group's stock at $125.20 a share so we expect the group's shares to pul back towards levels closer to our target price of $125.20. We therefore recommend long term investors to wait it out and look the buy The Walt Disney Company shares at levels closer to 10% below our target price, so look to buy at levels closer to the $110 a share.