The Walt Disney Company will release earnings after the market closes today. I’ll be listening in on the conference call to see if there are any interesting tidbits to report. In the past, Disney has offered information on attendance, hotel occupancy, theme park revenue, and other related matters. Here’s my report on last quarter’s report and the one before that. Currently, Disney stock is about 25% off it’s 52-week high of $44.34 at $33.61. Since the Dow is down about 15% over the last ten days, this drop isn’t necessarily indicative of Disney stock in particular. However, Disney has underperformed recently. Interestingly, most of Disney’s profit comes directly from ESPN. At least as far as the books are concerned, the theme park division is not particularly profitable. I’ll be back at 5pm with all of the details from this quarter’s report for anyone that wants to dork it up with me.
- Disney stock was up 5.06% during regular trading hours to $34.70. They are expected to announce earnings of 73 cents a share on revenue of 10.45 billion dollars.
- Disney looks to beat on the bottom and top lines – 77 cents/share on 10.68 billion revenue. Disney stock is up an additional 4% in after hours trading.
- Parks and Resort revenue came in at 3.17 billion with a net income of 517 million. That’s a 12% increase in revenue and 9% increase in income compared to last year’s third quarter.
From the earnings report:
Parks and Resorts revenues for the quarter increased 12% to $3.2 billion and segment operating income increased 9% to $519 million. Results for the quarter were driven by increases at our domestic parks and resorts, Disney Cruise Line, and Hong Kong Disneyland Resort, partially offset by decreases at Disneyland Paris and Tokyo Disney Resort. The decrease at Tokyo Disney Resort was driven by the impact of the March 2011 earthquake in Japan which resulted in a temporary closure of the two parks and hotels and a continuing reduction in volume after reopening. Results at both our domestic and international parks and resorts reflected a favorable impact due to a shift in the timing of the Easter holiday relative to our fiscal periods.
Higher operating income at our domestic parks and resorts was driven by higher guest spending and, to a lesser extent, attendance, partially offset by increased costs. Increased guest spending reflected higher average ticket prices, daily hotel room rates and food, beverage and merchandise spending. Increased costs reflected labor cost inflation, higher pension and healthcare costs, marketing and sales for new guest offerings, and expansion costs for Disney California Adventure at Disneyland Resort.
Higher operating income at Disney Cruise Line was due to increased passenger cruise ship days due to a full quarter of operations for the Disney Dream, partially offset by the related incremental operating costs.
The improvement at Hong Kong Disneyland Resort reflected higher guest spending and attendance. Guest spending was driven by increased merchandise, food and beverage spending, and increased daily hotel room rates. The decrease at Disneyland Paris was due to a prior-year sale of real estate and increased costs which were driven by volume related costs, repairs and maintenance and labor cost inflation. These decreases were partially offset by increased guest spending which was due to higher average ticket prices and daily hotel room rates.
- As of 4:25pm, Disney stock is trading lower after hours, down 2%.
Conference Call Notes:
- They’re talking about ESPN – 900 hours of Wimbledon tennis coverage coming your way!! LOL
- “Strong creative success” as far as the Studio segment is concerned. Thor, Captain America did well. Cars 2 on its way to 500 million global gross. War Horse from Stephen Spielberg, John Carter, and Brave coming next year.
- Disney Channel ratings up 10%, Disney XD up 24%, Phineas and Ferb 2nd Dimension was cable tv’s #1 movie of the year.
- Capital investment strategy: expand market, create long term growth. Fiscal 2011 and Fiscal 2012 will see most money spent.
- Cars Land coming next year, a “must.” Record Q3 attendance at Disneyland Resort.
- Disney Fantasy coming next year. “Very encouraged” by Disney Dream investment.
- Significantly expanding Fantasyland. Double size, enhance guest experience. First major enhancement to Magic Kingdom since 1971. Goals: Drive higher levels of guest satisfaction and increase spending at Disney World.
- Only invest money if expected returns are in the double digits.
- Operating income driven by increased guest spending at domestic resorts and higher number of cruising days
- Domestic Park attendance up 2% compared to same time period in 2010, adjusted for Easter 1% (this quarter included two weeks of Easter crowds, compared to one week during the same quarter in 2010), per-capita spending up 8%, average room spending up “an impressive” 14% due to room resort rates, overall occupancy down 1% to 81%. Willing to take a tradeoff on lower occupancy if it means higher room rates. Their goal is still to decrease promotions and normalize room rates. Disney believes this will drive profitability.
- If economy weakens, “at some point we might” reconsider promotions. Will take a look at holiday bookings. “Way too early” to predict if they’ll be discounting. “It’s not something we’ll necessarily have to do quickly (in reference to discounting for the holiday).”
- LOL they are really excited about Wimbledon coverage!!
- Disney owns “roughly” 50% of India’s largest film company. Made an offer to buy it outright, currently in regulatory talks.
- 13 billion spent in mergers and acquisitions is now worth 23 billion in “enterprise value.”
- In talks with Netflix, want to “increase revenue and respect multi-channel distribution value.” Looking to sell out of season/prior season programming.
- Uptick in international business, particularly in Florida during this quarter.
- “Wouldn’t read too much into timing of ticket price increase. Generally increase in the course of the summer. Last couple of years it has been later. We are seeing the kinds of trends that we strategically set ourselves up to see. Use promotions selectively to fill trough weeks, whether high or low water year. Net result of that is across the board revenue per guest is up at theme parks. Investment enables price elasticity. Adding capacity and attractions gives us the ability to price aggressively.”
- Won’t make long term deals for content.
- “From a rate perspective, rates at Disney World resorts were up much more in Value and Moderate Resorts, as we can expect coming out of a recession.”
- Average booking is 14 weeks out, from 13 weeks previously.
I think to please our friends over at the FTC, I have to tell you that I’m not a trained financial adviser and any advice I may or may not give should probably be discarded. I also own 50 shares of Walt Disney stock.
Disney stock is currently trading down 1.61% after hours to $34.14 after going up 5.03% to $34.70 during regular hours. That’s down about 23% from its 52-week high.
The fact that Disney executives are still pushing this idea that they’re easing away from promotions is curious because, by all accounts, it seems like promotions are still as widely available as they have been in recent years. Basically every single date in 2011 has been discounted in one way or another, with the exception of certain days over Easter. Moving forward, we have Free Dining for much of the rest of the year as well as room-only discounts for Annual Passholders (and likely everyone else soon) through Christmas. Just like last year, Disney has already announced Free Dining through the end of March 2012. This certainly doesn’t seem like we’re moving towards fewer discounts. The number of people paying full rack rate may also increase due to the Free Dining Promotion, which would result in the room rate increases the executives often cite.
As far as theme park attendance goes, Disney stopped releasing specific rates of increase/decline for specific theme parks a couple of quarters ago. However, we have to assume Disney World theme park attendance is down if domestic attendance overall is up only 1% and Disneyland is currently experiencing record attendance. During previous conference calls, someone usually asked about attendance at the specific theme parks, but that didn’t happen this time.
The overall outlook of the company seems positive. They’ve got some exciting additions coming online at the theme parks next year and a good-looking slate of films on the horizon. Ultimately, I’m not sure how they are going to increase profits or revenue in the theme park segment without additional enhancements. There is just not a lot of exciting new stuff begging the casual theme park visitor to return. If you ask the question, “I visited Disney World in September 2009, what’s new?” the answer would be not a whole lot. You’ve seen Wishes. You’ve seen Fantasmic. You’ve seen IllumiNations. You’ve been on all the rides. You’ve seen most of the shows. Hopefully there will be some exciting announcements at this year’s D23 Event that starts in just a couple of weeks. Certainly the Fantasyland expansion will help, but I have my doubts about whether it will seem fresh enough to truly entice casual guests.