Walt Disney (NYSE: DIS) reported fourth quarter and end of year earnings yesterday, and the year turned out to be a good one for the entertainment giant. Its media networks segment operating income was up 23% from 2006 figures, to $4.3 billion. Cable networks, primarily ESPN and Disney, were up $3.6 billion on higher ad rates and subscriber growth. ABC Studios returns were up slightly for the year but down for the quarter, a result of greater sales of shows such as Desperate Housewives and ESPN's Monday Night Football, offset by a drop in syndication revenue.
Parks and Resorts operating income up 11% for the year, to $1.7 billion, and up for the quarter 9%. The only down note was a drop in attendance at Hong Kong Disneyland.
Studio Entertainment had a good year, with operating income up 65% to $1.2 billion as it experienced strong sales of DVDs of Cars, the second Pirates movies, and a reissue of Little Mermaid. The soundtracks for phenomenons Hannah Montana and High School Musical also fattened the coffers.
Consumer Products operating income grew by 2% for the year and 10% in the quarter, with Cars and High School Musical merchandise doing particularly well. A new line of wedding garb fashioned after Disney characters also debuted this year.
The company finished with a diluted EPS excluding some special items for the year of $1.92, up from $1.55 in 2006. Disney also repurchased 202 million shares during the year. For the quarter, it reported EPS of $0.42, up 17% from 2006, and in line with analyst expectations of $0.41.
Looking forward to 2008, I see--
On the down side, a weaker dollar could result in a drop-off in domestic business as travel becomes more expensive. As advertising dollars increasing head to the internet, the company will have to find more access to these viewers and dollars.
The writer's strike could be a sharp blow to its television production and broadcasting revenues. Continued dismal results from Hong Kong Disneyland could weigh on investor's minds, as well.
On the up side, a weak dollar could bring more foreign visitors to the company's parks. Disney brings forward three of the top ten films of 2007; Pirates Part 3, Ratatouille and Wild Hogs, which should sell well in home release. The Hannah Montana and High School Musical products should have legs enough to produce through 2008, and new iterations of the Toy Story, Chronicles of Narnia, High School Musical, and National Treasure films should provide good box office returns in 2008.
A recently announced plan to invest heavily in updating Disney's U.S. parks will please those with more long-term investment goals, but could dampen returns in the near future.
Nonetheless, in a soft economy, I look for Disney to thrive by marketing the diversions we so badly need. The perfect way to forget the roller coaster ride of the stock market is to take a ride on a REAL roller coaster.
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