Disney Shares Set Record High on ‘Avengers,’ Profit

Wednesday, 09 May 2012 05:36 PM

 

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Shares of Walt Disney Co. closed at an all-time high of $45.02 on Wednesday after the company posted 21 percent earnings growth and promising to turn “The Avengers” into a franchise.

Shares in the world’s largest entertainment company rose 1.6 percent in New York, bringing the year-to-date gain to 20 percent, ranking fourth among the 30 members of the Dow Jones Industrial Average.

Fiscal second-quarter net income grew to $1.14 billion, or 63 cents a share, from $942 million, or 49 cents, a year earlier, Burbank, California-based Disney said Tuesday after the markets closed. Excluding one-time items, profit of 58 cents beat the 55-cent average of estimates compiled by Bloomberg.

The record weekend opening of “Marvel’s The Avengers,” which debuted after the second quarter ended March 31, is a focus of investor optimism. Disney is working on a sequel, racing to get more “Avengers” merchandise in stores and plotting to get the characters in its parks, Chairman and Chief Executive Officer Robert Iger said.

“My grandchildren’s grandchildren will be watching the movie,” William Smead, chief investment officer at the $190 million Smead Capital Management in Seattle, said in a telephone interview. “It’s just the gift that keeps on giving.”

Given the earnings potential of “The Avengers” and other Disney franchises the stock is still undervalued, Smead said. His firm owns 175,000 shares.

The film took in $207.1 million in its U.S. debut last weekend and over $700 million worldwide since its release two weeks ago, the company said.

Theme Parks

Disney’s second-quarter sales gained 6.1 percent to $9.63 billion, beating projections of $9.56 billion. The company had a gain of 5 cents a share, reflecting a $184 million noncash credit on its investment in UTV Software Communication Ltd. and $38 million in impairment costs.

“The theme parks and ESPN covered for the movie studio, and the next quarter the movie studio will pick up,” Smead said.

Theme-park operating profit leapt 53 percent to $222 million on a 7 percent increase in domestic attendance and higher average room rates worldwide. Revenue soared 10 percent at the namesake resorts to $2.9 billion, driven by gains in the U.S., Tokyo and Hong Kong. Revenue fell at Disneyland Paris, the company said.

Sales at Disney’s media networks, including ESPN and ABC, increased 8.6 percent $4.69 billion, while profit grew 13 percent to $1.73 billion.

“The cable networks, principally ESPN, continue to be the growth engines for Disney,” said Paul Sweeney, senior analyst at Bloomberg Industries. “Investors have long wondered how long the ESPN growth story can continue. There is no evidence in these numbers to suggest a slowdown.”

Studio Loss

Disney’s film studio recorded a loss of $84 million in the quarter, reflecting the failure of the science fiction movie “John Carter.” That was at the low end of a company projection in March for a loss of as much as $120 million.

The loss at the interactive unit narrowed to $70 million from $115 million. Iger said that business, which designs websites and games, was on track for profitability in 2013.

“Disney is doing everything they said they would do,” said Todd Juenger, a media analyst at Sanford C. Bernstein & Co.

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