Walt Disney Earnings Preview: Sports And ‘Cars’ Drive Home Higher Profits

The Walt Disney Company (NYSE: DIS) is expected to report higher fourth-quarter earnings, with its cable networks logging strong ratings and its theme parks unit turbocharged by the success of the new Cars Land ride at Disney California Adventure. Conversely, continued declines are expected in interactive media, proving that the world’s largest media conglomerate has still not conquered the Internet.

The Burbank, Calif., company, which reports Thursday, is expected to report net income of $1.2 billion, or 68 cents per share, according to analysts polled by Thomson Reuters. That’s an increase of 11.3 percent over last year’s net income, which was just shy of $1.1 billion, or 59 cents per share. Disney is expected to report total revenue of 10.9 billion, an increase of 4.7 percent over the $10.4 billion reported for the year-earlier period ending Sept. 30.

Disney’s cable networks, which include the Disney Channel, ESPN and ABC Family, are by far the conglomerate’s largest business segment, representing an estimated 44 percent of the company’s stock price, according to analysts at Trefis. High ratings on those networks are expected to help bring in $3.6 billion for the quarter, up 6 percent for the year-earlier period.

“The cable networks have done it for them, specifically ESPN and the Disney Channel,” said Michael Corty, an analyst with Morningstar. “Ratings improved this quarter and ad dollars obviously follow that.”

With revenue growing at 9 percent per year, ESPN is showing no signs of slowing down, and this quarter was no exception for the leading sports network. On Aug. 28, the network inked a $5.6 billion with Major League Baseball, giving it broadcast, radio and multimedia rights to the regular season and playoff games through 2021.

“Live sports are a really hot area right now,” Corty added. “Single-game events can draw big ratings.”

Disney’s parks and resorts unit, which makes up 13.5 percent of its stock price, has benefited from higher bookings, including bookings on Disney cruise ships. Cars Land, the intricate centerpiece of an estimated $1.1 billion revamp of Disney’s California Adventure, opened two weeks before the start of the quarter amid much fanfare in the press. In all, Disney’s theme parks unit is expected to report revenue of $3.41 billion, up 9 percent from the year-earlier period, according to a research note by Laura Martin, an analyst with Needham & Company.

According to Martin, solid sales of “Cars” merchandise also helped Disney’s consumer products unit, which owns and operates 357 Disney stores in North America, Europe and Asia. Needham expects the unit to report revenue of $377 million, up 7 percent for the quarter.

Disney’s studio entertainment division had more or less flat results. On Sept. 5, just as the summer movie season was winding down, Disney stocks reached an all-time high of $51.13 amid momentum from the phenomenal success of the super-hero epic “The Avengers,” which was released on May 4 and has since become the highest-grossing movie of the year and the third highest-grossing movie of all time. Raking in worldwide ticket sales of $1.5 billion, the movie has more than justified Disney’s decision to acquire Marvel Entertainment for $4 billion in 2009. However, on Sept. 13, Disney’s chief financial officer, Jay Rasulo, announced that the company would take a $50 million write-down due to a film project that was scrapped, costing the company 2 cents in per-share earnings. Rasulo did not name the project, but some reporters theorized that it was a stop-motion animation movie to be directed by Henry Selick.

Corty added that “this quarter is not typically crucial for the studio, as DVD and home-video sales don’t usually start taking off until around Thanksgiving.”

Interactive media, which includes the Disney.com website, continued to be a struggle for Disney. During a third-quarter conference call in May, Robert A. Iger, Disney’s CEO and chairman, said he hoped a new redesign of Disney.com would boost the segment after 15 consecutive quarters of losses, but the redesign was not unveiled until just after the end of the fourth quarter. Disney Interactive is expected to report revenue of $200 million, down 10 percent for the year-earlier period.

Analysts say the overall picture of the world’s leading family-entertainment company is as bright as pixie dust. Disney shares have a mean recommendation of “Overweight,” according to 28 analysts, 15 of whom rated the stock “Buy.”

“We think the Disney properties will remain popular for years to come,” Corty wrote in an Aug. 29 research note.

Disney shares rose 23 cents to $50.70 in premarket trading Thursday.