DIS Summary: A Beat, With Caveats

To read Steve Birenberg's preview of the Disney conference call, click here.

Disney (DIS - commentary - Trade Now) reported better-than-expected fourth-quarter 2009 financial results. Benefiting from an extra week, the company reported adjusted EPS of 46 cents, easily beating consensus of 40 cents. Revenue also beat expectations handily, coming in at $9.69 billion against a consensus estimate of $9.26 billion.

Although the company got little direct questioning on the call, I believe a material portion of the upside came from the extra week. My initial back-of-the-envelope calculations still show some upside, but not enough to justify the initial 3.8% pop in the stock. I'll be surprised if the stock is up that much when it opens on Friday.

Highlights of the quarter include -3% ad sales at ESPN, weak theme park revenue and margins, and the expected poor performance of operating profits at the movie studio. On the upside, there was improvement at ABC and the local TV stations, and affiliate fees at the cable nets continue to show steady gains.

Like other media companies that reported last week, Disney indicated that ad trends are improving. Ad sales are getting an added boost from good ratings at ESPN and a decent start to the new TV season at ABC, including a couple of new shows turning into hits. The company mentioned that scatter pricing is running up 20% and that option pickups for the March quarter are the best in 10 years. Trends at the local TV stations improved to -15% in the September quarter. Management was less optimistic about December quarter trends than other TV station owners who reported last week.

Disney's theme parks set the company apart from the rest of the media companies. I find trends here to be a bit worse, especially adjusting for the extra week. Attendance is holding up well, but the cost is high, with revenue down more than 10%, adjusting for the extra week and also an unspecified amount of sales of Vacation Club properties. Reported results in the fourth quarter showed revenue -4% and operating income -17%. This is another indication of pressure on the business, as margins are declining.

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At time of publication, Birenberg had no positions in DIS, although holdings can change at any time.

Steven Birenberg is president and chief investment officer of Northlake Capital Management, LLC. Northlake specializes in managing equity portfolios using a combination of exchange-traded funds and special situation stocks. Birenberg appreciates your feedback; click here to send him an email.