Highlights From DIS's Q4 Conference Call: Results Driven by Increase in Media Networks and Parks and Resorts

Last night, Walt Disney (NYSE: DIS) reported Q4 EPS of $0.58, $0.04 better than the analyst estimate of $0.54. Revenue for the quarter came in at $10.43 billion versus the consensus estimate of $10.36 billion. Shares are trading up 7.35% today.

Highlights From DIS's Q4 Conference Call:

• (Robert A. Iger) Our net income grew by 21% over a year ago on a 7% increase in revenue, and our earnings per share, adjusted for comparability, were up 23% for the year.
  
• I'm also very pleased with our fourth-quarter results, which were driven by Media Networks and Parks and Resorts, with net income up 30% and revenue up 7%.
  
• Our fiscal 2011 results validate our strategic priorities and demonstrate we can grow our earnings in the near term while continuing to invest for long-term shareholder value.
  
• Less than two weeks ago, we announced the launch of a free-to-air Disney Channel in Russia that will reach 40 million households and 75% of the country's viewers with signature Disney programming and original Russian content. With a portfolio of 100 Disney channels around the world, up from 19 a decade ago, Disney Channel serves as an anchor for our growth and is a preeminent brand-builder. We're extremely excited about this opportunity in Russia.
  
• In China, work has begun on Shanghai Disney Resort, a 963-acre site that will include Shanghai Disneyland, two themed hotels, and a large retail dining and entertainment venue. The Shanghai Resort is a key component of our growth strategy in China. And in India, we are in the process of acquiring the 50% equity that we don't own in UTV, one of the country's premiere media and entertainment companies. Combined with UTV, we will be the leading film studio, producing both UTV and Disney-branded films, and we will increase the number of cable and satellite channels we own from three to nine. The combined UTV and Disney assets will allow us to significantly grow our businesses in India.
  
• Follow the success of the Disney Dream earlier this year, we will launch the Disney Fantasy in spring 2012, and our Imagineers and James Cameron are already at work on the design of our first Avatar-themed land at Walt Disney World's Animal Kingdom.
  
• Nothing illustrates our ability to create enduring quality family entertainment better than the re-release of The Lion King in 3D. Nearly 20 years after its original premier, it has grossed about $150 million in box office worldwide, and was the number one selling Blu-ray disc its first week of release.
  
• In fiscal 2011, Pirates of the Caribbean: On Stranger Tides, the fourth film in our extremely successful franchise, earned more than $1 billion in global box office, one of only 10 films to have done so, and we are in early development for another Pirates sequel.
  
• Cars continues to be a great franchise for us. In addition to grossing $559 million in global box office, Cars 2 continues to drive very strong performance in our Consumer Product business, which we expect to continue into the holiday season. It has surpassed both Star Wars and Toy Story in retail sales of movie theme merchandise.
  
• Marvel's Thor and Captain America were among the top 10 non-sequel releases of the year, and we were pleased with the performance of both films, and the true benefits of our Marvel acquisition should be quite visible in 2012.
  
• First, in May, Thor and Captain America will join Iron Man, the Hulk, and Black Widow in Marvel's The Avengers, the first Marvel film to be marketed and distributed by Disney.
  
• Then in July, Sony Pictures will release The Amazing Spider-Man. We're excited about the film and expect it will drive significant benefits for Spider-Man in Consumer Products.
  
• Turning to cable net, ESPN posted a record number of viewers for the fourth consecutive year and remains the leading destination for sports. ESPN.com has captured 70% of fans on mobile sports sites, and in September, ESPN.com set a record for its most unique users ever, with 52 million.
  
• ABC Family had its fifth consecutive year of growth in its key demographic of 12 to 34-year-olds, up more than 9% in fiscal 2011. ABC Family was home to three of the top scripted shows on basic cable this summer, including Switched at Birth, which was the top-rated new cable show among millennial viewers.
  
• At ABC Primetime, we're seeing some very promising signs. ABC has two of the top three new dramas among 18 to 49-year-olds and the top two drama debuts with ABC-owned Once Upon a Time and Revenge.
  
• In our games segment, we've diversified our strategy and are seeing success with both social and mobile games. Where's My Water reached the top of the paid apps chart for three weeks this fall, and Gardens of Time was recently named top online social game by its industry peers. And we will be launching several new Disney-branded Facebook games incorporating Disney IP in 2012.
  
• (James A. Rasulo) In Q4, Media Networks was the largest contributor to our performance, driven by growth in operating income at cable networks, more specifically by growth at worldwide Disney Channel and ESPN, and an increase in equity income.
  
• Advertising revenue at ESPN was up 4% during the quarter, but up 7% adjusting for the impact of last year's men's World Cup. This growth is on top of a 19%increase ESPN delivered in Q4 last year. And if you look at the full year, ESPN ad revenue grew 18% in fiscal 2011, and that's following a double-digit increase in fiscal 2010.
  
• During the quarter, ESPN signed a new long-term agreement with the NFL. This deal extends our Monday Night Football rights through the 2021 season and provides us with 500 hours of incremental programming per year, which we began airing this season.
  
• At our owned TV stations, ad revenue was down 11%, but excluding political advertising and the recently-sold Flint and Toledo stations, ad revenue was up low single-digits.
  
• We were very pleased with our results at Parks and Resorts in the quarter. Operating income was up 33% as a result of higher guest spending at our domestic parks, and higher passenger cruise days, partially offset by increased costs. Total segment margins for Q4 were up 220 basis points versus last year, and domestic Parks and Resorts margins were up more than that. For the full year, total segment margins were up 90 basis points.
  
• For the quarter, domestic attendance was up 1%, and per capita spending was up 9% on higher ticket prices, food and beverage, and merchandise spending.
  
• Average per-room spending at our domestic hotels was up 9%, while occupancy was down 2 percentage points, to 81%. The increase in per-room spending was driven by higher pricing and a reduction of promotional room nights.
  
• At Studio Entertainment, operating income was up for the quarter as the result of lower film cost write-downs and higher domestic theatrical revenues, despite lower results in our international theatrical and worldwide home video businesses. Domestic theatrical results were up in the quarter as a result of Cars 2 and the release of The Lion King 3D, as well as lower pre-release marketing expense, compared to last year.
  
• At Consumer Products, operating income was up for the quarter, driven by higher licensing revenue due to sales of Cars merchandise and higher revenue from Marvel properties. On a comparable basis, earned licensing revenue was up 2%.
  
• In fiscal 2012, ESPN will once again air four BCS games and the Rose Bowl, all of which will take place during fiscal Q2. Last year, two of these games, the Rose and Fiesta Bowls, aired during fiscal Q1.
  
• Giving the timing in our existing contracts, we expect to negotiate new agreements for our cable networks and owned TV stations covering an incremental 75% of multichannel households by the end of calendar 2014.
  
• At Interactive Media, we expect the impact of purchase accounting from the Playdom acquisition to decrease from $110 million in fiscal 2011 to approximately $50 million in fiscal 2012, with the majority recognized in the first half of the year.
  
• We expect consolidated CapEx to be approximately $500 million higher than in fiscal year '11, with our work on the Shanghai Disney Resort being the largest driver of this increase.
  
• We expect pension and post-retirement medical expenses to increase by $50 million in fiscal 2012. If you recall, in May, we announced changes in our salary pension plan that will reduce our expense over the next five years by $350 million to $400 million, or approximately $75 million per year versus our previous plan. We still expect to realize these savings in fiscal 2012.
  
• We continued to increase the pace of our share repurchase during the fourth quarter by buying back 58 million shares, for about $2 billion, bringing our total share repurchase for fiscal year to 134.7 million shares, for approximately $5 billion. During the first quarter of our new fiscal year, we have repurchased 12.7 million shares, for about $420 million.
  
• (Q&A) I have a couple; one, just housekeeping to start with. Jay, I don't think you told us the affiliate fee growth this quarter. Could you tell us that so we don't have to wait for the K to come out? (A) Affiliate growth in the quarter was - to the total cable networks was 8%.
  
• Well, the question is, if you look at the volatility in park margins this year - right? This was a really strong quarter, margins, and the flow-through was really high. So, when you look at this quarter, what happened this quarter on margins that got you the operating leverage, and are those conditions sustainable? (A) Well, there's two major contributors to the increased margins. Of course, when I reviewed the per-cap, a lot of that was due to R&A pricing and higher ticket prices, which, needless to say, don't have a lot of interference flowing to the bottom line. We also, as we've been telling you, had a very, very strong response to our new cruise ship. It is booking at great rates. It is contributing very well to our revenue. And both of those, I would say, were the key drivers to our margin improvement in the quarter.
  
• Okay. And then one for Bob on sports. You mentioned being disciplined in buying sports rights. We've seen in the past month or two some pretty expensive deals for rights that maybe are not primary, so how do you balance your need to keep on acquiring key sports rights with your desire to drive returns for the company and for the shareholders? So how do you think about what you need to buy, and what you don't need to buy? (A) Well, we look at each package that's available individually with an eye toward, literally, what kind of value we think it's going to drive. Is it going to support the brand? What kind of volume are we talking about in terms of number of hours? What will the ratings be? Can we convert to advertising? And how can we better serve our customers, which are both of multi-channel distributors and ultimately the end-users, the viewers? The NFL is a good example. There's no question that was an expensive deal, and as I was saying, using the word discipline, I was thinking about the cost to us of extending that deal. But what we saw when we did that was, first of all, a long-term deal that takes us to 2021. That's tremendous certainty. We know we have certainty in certain terms of quality of the product and the games and the interest in those from our viewers and our distributors - and advertisers, by the way. And we have the ability to program more than 500 more hours of NFL programming kind of annualized. So, when we added all of that up, and we looked at the growth trajectory of those rights fees, we concluded that, if there's anything that creates value for ESPN, it's the NFL. And so we applied similar logic - the college football and college basketball package that we bought represent quality programming. Huge local interest in those; you know, if you've gone to a college that has a decent sports team, how loyal you tend to be as a viewer to that team, to those teams; again, long-term deals. And the other thing that we've gained in a lot of these deals is multi-platform capabilities, so it grows our customer engagement, and that's a big deal. The growth of ESPN.com, which I cited in my earnings comments, the use of smart mobile devices, in some cases international rights, these are all very, very valuable. Those sports that we did not get, interestingly enough, the World Cup and the Olympics, while there's no question they're high-quality, they don't occur every year. They occur for a short period of time. And we didn't believe that we could justify the kind of rights that ultimately others paid for it because it didn't really meet the standards based on the cost those rights were going to amount to, to us, that we've adhered to for these other packages.

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Walmart (WMT) PT Lowered to $130 at UBS on Investment Narrative's Competing Dynamics
• Deutsche Bank monitors UK auto sales as Chinese exports grow
• Vireo Growth completes acquisition of C21 Investments