Walt Disney Company (DIS) Earnings Preview: ‘Infinity,’ ‘Frozen’ Drive 16% Quarterly Profit Increase

The Walt Disney Company (NYSE:DIS) is expected to report a 16 percent jump in fiscal year 2014 first-quarter profit as rising retransmission and ad revenue boosted its TV networks and the runaway hit “Frozen” gave a holiday blast to its studio unit.

The Burbank, Calif., media conglomerate is expected to book net income of $1.63 billion, or 91 cents per share, for the three-month period ended Dec. 31, according to a Thomson Reuters survey of analysts. That’s a 15 percent increase over the $1.4 billion, or 77 cents per share, reported for the same period last year. Excluding one-time events, Wall Street expects earnings per share of 91 cents per share, up from 79 cents per share in the year-earlier quarter.

Revenue is expected to rise 7.8 percent to $12.22 billion, from $11.34 billion a year earlier, according to analysts polled by Thomson Reuters.

Disney will report financial results on Wednesday at about 4:15 p.m. EST. A live webcast is scheduled for 5 p.m. EST.

Analysts expect each of Disney’s five distinct units (Media Networks, Parks & Resorts, Studio Entertainment, Consumer Products and Interactive) to report an increase in revenue, including the long-suffering Interactive unit, which is experiencing a comeback of sorts with the hit video game “Disney Infinity.” A Disney spokeswoman said in a statement on Saturday that the action-adventure game, in which players can interact with both Disney and Pixar characters, was one of the 10 best-selling games of 2013, according to the research firm NPD.

Despite the hit game, Disney Interactive is reportedly expected to layoff several hundred employees from its workforce of about 3,000. The Wall Street Journal, citing people close to Disney, reports that the layoffs are largely expected to hit the online-gaming business Playdom, whose releases have mostly underperformed since Disney purchased the company in 2010. The layoffs are expected to begin after Disney reports its Q1 results on Wednesday.

Media Networks, Disney’s largest unit, is expected to report revenue of $5.39 billion, an increase of 6 percent over the same period in the previous fiscal year, according to Laura Martin, an analyst with Needham. The increase comes despite a mixed ratings bag for Disney’s stable of broadcast and cable networks. Viewership grew for Disney’s sports networks, ESPN and ESPN 2, which saw ratings increases of 4 percent and 8 percent, respectively. At the same time, the broadcast ABC network saw its ratings dip 4 percent, while Disney Family plummeted 12 percent. Compared with the same period last year, ratings were down 2 percent in the December quarter across Disney’s ad-driven channel group.

But Martin pointed out that, even in the face of falling ratings, Disney’s U.S. ad revenue has seen continued growth for the past seven quarters. That trend is expected to continue in the January-through-March period. “Long term, we believe Disney has the strongest bundle of channels,” Martin wrote in a Jan. 27 research note.

Disney’s Parks & Resorts unit, which continues to attract larger crowds and higher per-guest spending, is expected to see more gains in the first quarter, consistent with growth in 2013. The unit now makes up an estimated 23.3 percent of Disney’s stock price, according to Trefis.com. Parks & Resorts is expected to report revenue of $3.68 billion, an increase of 8 percent over the year-earlier period.

Jeffrey Logsdon, an analyst with Ascendiant Capital Group, said in a January research note that Disney’s Parks & Resorts unit is in the “enviable position” of benefiting from a normalized economy, as well as “capacity expansion” in the form of new parks, attractions and cruise ships.

Disney’s Studio Entertainment unit, boosted by the blockbuster success of the animated film “Frozen,” is expected to report revenue of $1.68 billion, up 9 percent from the same period last year, when “Wreck-It Ralph” was its big holiday-season release. “Frozen,” which hit theaters on Nov. 22, took in a worldwide gross of $864 million on a $150 million production budget, according to Box Office Mojo. Domestically, it ranks No. 2 among all holiday movies released in 2013.

Disney continues to be a favorite among analysts who follow media stocks. Last month, Logsdon called Disney a top media pick for 2014 and Yahoo Finance named it “Company of the Year.” “The mix of uniquely profitable brands, unduplicatable franchises and assets, as well as best-in-class financials make it a core holding for growth investors as earnings continue to drive positive investor sentiment,” Logsdon said.

Disney shares closed Monday at $69.99, down 3.61 percent.

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