Long live Mickey Mouse! Walt Disney reported strong results last night which reflected broad strength across the economy. Disney has diversified exposure to discretionary spending with its parks, media properties, and international businesses. A consistent theme through earnings season has been broadly solid corporate earnings and DIS is another example of this from a large capitalization blue-chip multinational. Walt Disney produced the enviable combination of results demonstrating solid top line sales growth, margin expansion, and tremendous EPS growth as cash flow was used to repurchase shares.
Disney’s revenues grew 7% this quarter with strength from the parks division, media properties, and product royalties. Developing markets such as Russia, China, and India were called out as strong on the earnings conference call. Disney’s cable and media properties are expanding globally and Bob Iger pointed out that the company now has over 100 Disney channels around the world. ESPN is experiencing increased viewership with 52M unique users and advertising revenue is growing as a result. In the parks division, the company raised theme park ticket prices and also experienced strong forward bookings which stretched out from 13 to 14 weeks. Disney’s cruise ship business is healthy and consumer product royalties are higher driven by Cars and Marvel properties.
Through earnings season there have been an abundance of examples of solid Q3 earnings. Disney reduced its share count by 4% vs. the same quarter last year. A common theme has been companies boosting earnings growth due to capital allocation. The positive undertow from earnings season hasn’t been the main investment focus this fall. Unfortunately, markets have been forced to obsess upon the financial system in Europe. The overnight risks for the markets remain high. When the European crisis risks come off the table there will be a healthy business environment to invest in. At some point there will be investment flows back into the US stock market when the resiliency of S&P 500 companies is better appreciated (and valued). Predicting the specific timing is impossible of a better market environment is impossible but it will inevitably arrive at some point. In the meantime investors who wish to participate and own the leading companies will need to continue to withstand outsized volatility.