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Disney (DIS) reported earnings for the fiscal third quarter after the bell on Tuesday. I've been critical of Disney, especially when it comes to the shareholder-friendly notion of a higher dividend. However, I have to say, I liked the quarter.Net income of 67 cents per share beat the consensus estimate by nine pennies. Furthermore, free cash flow increased 21% in Q3 and jumped 25% during the nine-month period, according to the press release. The individual operating segments did very well, although the theme-parks division did see an 8% decrease in profit. It would be nice to get some positive income from interactive media instead of a loss.
So, how does the market feel about the earnings? The after-hours action was rather non-eventful -- up around 1% at one point. But for shareholders who have held this media company for a long, long time, it simply isn't enough. Everyone is waiting for the day when the shares head above the $40 mark.
Increasing earnings per share by a healthy double-digit rate is good news, but management needs to do more. How about a special dividend? How about a sale of more assets? Disney recently sold the Miramax library, and it recorded a gain during the quarter for the Power Rangers transaction, but execs should evaluate the portfolio for purposes of identifying other potential deals. I wouldn't want to witness any big moves, necessarily; I certainly wouldn't want ABC sold off. Nevertheless, Disney has made so many acquisitions recently that a balance has to be struck.
I'm not about to complain about the quarterly performance, but a stock and a company oftens are different beasts altogether. We may say the Mouse is a value, especially with Marvel readying some significant releases over the next two summers, but so far, Wall Street seems unimpressed. That's why CEO Bob Iger's focus should be on appeasing his conglomerate's owners with higher payouts; he also must go further in terms of cutting the costs associated with content development.
Disney shouldn't ignore the shareholders; the price of the stock is important. Cash-flow growth is good, but unless more of the green stuff is returned to investors, as opposed to buying online destinations that, in my opinion, have questionable long-term potential (Playdom is what I'm referring to here, of course), I'm afraid capital-appreciation magic may be a long way off.
Disclosure: I own Disney; positions can change without notice.
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Reader Comments (Page 1 of 1)
8-11-2010 @ 9:25AM
Dan Barnett said...
Steve,
The last year or so has proved that every earnings announcement can be read for either good news or bad news. DIS's is no exception. You can look on the bright side or you can accentuate the negative. DIS beat expectations by a dime: one could always wish for more, but "more" is something you can never achieve. The theme parks have cut the discounting they have done for the past two years, so the negatives there are likely to be reversed. DIS hasn't increased a dividend: tell that to BP or BAC shareholders. You, at least, still have a dividend. The stock is around $35 vs, a year high of $37+. $40 is a hope, but is 10% above year highs a real expectation?
But my purpose here is to ask you to consider what you ask in your last paragraph. Enron took care of the shareholders at the cost of the existence of the company. Stock price is not everything to a company and if you feel that "the market" is undervaluing DIS, the solution is to increase your holdings against the day that the rest of the world catches on too.
Cut a mouse some slack.
8-13-2010 @ 3:06AM
Steve said...
Hi Dan,
The problem with Disney these days is that I believe shareholders aren't putting the kind of pressure that they should be on management to produce better returns. It is true that stock price isn't everything, but if stock price is to go down, then a good dividend must be present to offset such loss and to offer support.
I also fear that Iger is being given too much of a pass. So far, I am unimpressed by his performance. While he seemingly buys everything in sight, he can't get Wall Street to care. Perhaps it isn't his fault, but if he isn't properly communicating the Disney thesis to the smart money, then is it time for him to step aside? In other words, should he leave before he becomes an ineffective Eisner?