Disney Starts Off the New Fiscal Year with Solid Results

Even better, cash from operations jumped more than three times the level achieved in last year's comparable period. Free cash flow came to over $600 million. Twelve months ago, shareholders were looking at a negative number for this metric. However, something should be noted about the free cash. Have a glance at the line dedicated to acquisition activity in the statement; you'll note over $2 billion attached to it.

Of course, there's nothing wrong with Disney using the traditional definition of free cash flow in its calculation. I point out this issue because acquisitions do sometimes come into play when providing a context for the quality of money generation (especially for entities that use large asset purchases as a core strategy). Keep in mind, the theory is that an investment in an acquisition will eventually contribute a significant amount of value in the long term and will pay for itself many times over (let's hope this occurs with Marvel Entertainment).

It was impressive to see the studio segment gain 30% in terms of operating profit. I enjoyed the fact that lower participation expenses helped the cause; studio execs must continue to structure deals that minimize exposure to this type of dragging financial element. Media networks also did well. Consumer products, unfortunately, experienced an 8% dip in income, while parks and resorts was down 2%. Consumer products were particularly irritating; Disney needs to really energize its licensing business and work harder to ensure a proper mix of brands in the marketplace. Interactive media also requires some assistance, especially where it concerns the company's video game strategies.

At the times of this writing, shares were basically flat in the after-hours session. Overall, I thought this was a decent start to the fiscal year, but I can understand a little reticence from the market players. The stock has already engaged in a run-up in value over the one-year period, so perhaps many on Wall Street believe that a lot of the good news is priced in.

While I think this is a bullish beginning, I am hoping that future quarters will bring better fortunes for consumer products and even better fortunes for movies. CEO Bob Iger must now begin to intelligently exploit the Marvel portfolio to make that cash-flow statement rock like it's never rocked before. The studio segment must not rest on its laurels; it's going to be a key driver in the next few years. Well, it'll be a key driver if the company works it properly. For now, I don't find Disney a compelling buy until the next big pullback. I get the feeling that the stock will trade sideways for a while, but we'll have to keep track of the price action as it develops to see what signals the tape eventually sends.

Disclosure: I own Disney, GE; positions can change without notice.