Can theme parks carry Disney?

A slumping movie business is hurting revenue, but Disneyland and other parks are keeping investors enthusiastic about the stock.

By Jim J. Jubak Feb 8, 2012 6:10PM
When I sold Walt Disney (DIS) out of my Jubak's Picks portfolio on Jan.10, I flagged problems at the company's movie business as the reason.

Well, when the company reported earnings Tuesday for its recently concluded first quarter of fiscal 2012, the movie unit was a concern. Revenue at Walt Disney Studios dropped 16% from the year-earlier quarter.

And that was a big contributor to the company's revenue miss for the quarter. Disney reported revenue of $10.78 billion, an increase of just 0.6% from a year earlier. That was well below the $11.19 billion consensus estimate for revenue from Wall Street analysts.

But it turns out that the stock market didn’t much care. Earnings climbed to 80 cents a share, 9 cents a share better than the Wall Street consensus as the company's parks unit killed on both revenue and operating income. Shares were up 1.4% Wednesday afternoon to $41.57. That's 4.9% above the price at my Jan. 10 sell call.

One of the reasons that investors decided the good news out of parks trumped the bad news out of movies is that revenue at the parks unit very closely track the U.S. economy. So good news from Disney's parks fits in exactly with the expectations for stronger-than-expected U.S. economic growth that are in general driving this stock market rally.

But exactly how strong that economy will be remained an open question, if you listened to chief financial officer James Rasulo during the company’s conference call. The 10% increase in revenue at the parks unit came from higher ticket pries and higher spending on hotel rooms as Disney continued to roll back promotional room rates put into place during the recession. The ability to raise prices is certainly a sign of an improving economy. So is the increased spending on food and drink at the Florida and California parks.

But Rasulo didn't go overboard when he talked about the company's next quarter. For example, bookings, he noted, were running ahead of the levels of a year ago by mid-single digit rates.

I still think the big bump upward for this stock will come in fiscal 2013 when capital spending starts to fall off. In fiscal 2012, capital spending is still climbing and looks to finish the year around $4 billion as the company builds out the new Shanghai park, refurbishes U.S. parks, and invests in a new cruise ship.

The current troubles in the movie and the interactive media units -- caused by a lack of movie and game titles and by lagging performance of DVD titles such as "Cars 2" -- should make year-to-year comparisons in 2013 look very strong. In the current quarter Disney’s main release was "The Muppets," a decent performer but not a blockbuster. That's a low bar to jump.

I'd look to re-enter the stock at $36 or lower on the next dip to position myself for fiscal 2013.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did not own shares of Walt Disney as of the end of December. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 

Tags: DIS
6Comments
Feb 8, 2012 9:49PM
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I have followed this stock for well over 30 years, it bought me my home and has given me very good returns. That said, this company has always been a triad of sorts, if the theme parks fail, the movies do well, and the tv/cable/retail units does well, or any combination. They have diversified over the years to protect themselves from down turns in each of the operating units. And again it may happen were all of the operating units fail at the same time, but i have really not seen that in many many years for Disney. It is a long term growth stock and has been forever.
Feb 9, 2012 2:50AM
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Finally, an awesome positive piece from Jubak on my favorite stock, Disney! Disney released their prices for hotel rates and cruises a few weeks ago for 2013. The prices were shocking. Hotel rates have doubled. Cruises have quadrupled. Can they actually get these prices? If so, Disney will easily cross the $100 mark very quickly. But, Mr. Jubak, you are dreaming if you think this stock is going back down to $36 in this Bull Market. Besides, the new Marvel Avengers movie comes out in early May and there will be many more movies. What about a Global CNN for latinos? What about buying the predominant tv station in India? This stock is ready to explode upwards. Great article. I agree with every word except the stock dipping. But if it does, I'll buy more. When will it dip?

Feb 9, 2012 1:11AM
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The Disney parks have carried the company in past down times for the films; it can do it now, too.
Feb 9, 2012 8:02AM
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rsobob, you may love Disney stock, but you should be aware that a group of unhappy consumers are working to boycott Disney because of their greedy business practices.  You might think about buying a more stable stock and getting out of Disney.
Feb 9, 2012 7:59AM
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Disney is the ultimate example of corporate greed.  They have destroyed Walt Disney's legacy.  Personally, I have been upset with Disney with the declining quality of their movies, including the ending of the pirincess movies.  They have also begun ruining a generation of teenagers by encouraging bad behavior by their stars like Miley Cyrus.  And now they want to ruin a generation of toddlers with Disney, Junior.  They are runing the ABC network with horrible programming decisions in the past 2 years, including taking off flagship shows and replacing them with talk and reality shows.  Let's not even mention how much a Disney vacation costs compared to a Vegas vacation!  And how about Disney being the pirmary backer of the horrible anti-piracy acts up in congress that would virtually demolish the internet?  This company needs to learn a lesson.  In my house, there will be no new Disney purchases,  I will watch the videos I already own and wear my Mickey watch that I have had for years, but that will be it.  No more money from my family will go into the pockets of Bob Iger and his ilk until they start respecting the Disney tradition and get over the greed.  Demi Lovato was smart to break away from their network.  Too bad she coudn't get away from their record label.
Feb 9, 2012 5:08AM
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Thats Disney..You can expect their earning to grow As they change the landscape of Florida,  As well as its political agendas.
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