The man behind Disney's success story
By François Rochon, Special to THE GAZETTE November 19, 2013
Disney brings an icy world to life in Frozen. The beauty of the consumer products division lies in the fact that it continues to make profits out of movie characters for many years
Photograph by: Disney
MONTREAL — In March 2011, I wrote a detailed column on the Walt Disney Company. The stock was then trading at $42. It reached a record high of $70 last week, up 67 per cent over the 32 months. I believe the rise is totally justified by the solid economic performance of the company during this time frame.
Firstly, let’s look at the latest results. Walt Disney Co. reported record earnings for its fourth quarter and fiscal year ended September 28. Diluted earnings per share (EPS) for the quarter increased 13 per cent to 77 cents from 68 cents in the prior-year quarter. For the year, adjusted EPS increased 10 per cent to $3.39 from $3.13 in 2012.
The Media Networks is still the main contributor to operating profit. It earned $6.8 billion in 2013 (64 per cent of total profits). The main brands are Disney Channel and ESPN. The specialty sport channel is an outstanding business. It was acquired some 17 years ago when Disney merged with Capital Cities ABC. Although Disney’s main target was the ABC broadcast Network, it turned out that the treasure was ESPN.
The other main division is Parks and Resorts: For the fiscal year, revenues increased 9 per cent to $14.1 billion and segment operating income increased 17 per cent to $2.2 billion.
Operating income growth reflected increases at domestic parks and resorts, Disney Vacation Club and Hong Kong Disneyland Resort, partially offset by a decrease at Disneyland Paris and higher pre-opening costs at Shanghai Disney Resort. Growth at domestic parks and resorts was due to increased guest spending, attendance and occupied room nights.
Although studio profits were down 8 per cent for the year, the consumer products division increased profits by 19 per cent.
Disney makes more money selling consumer items of all sorts than from making movies. The beauty of the consumer products division lies in the fact that it continues to make profits out of movie characters for many years — if not decades — after the movie is first released (as with Toy Story or Finding Nemo).
The big news of the fiscal year came at the end of October 2012 when Disney acquired Lucasfilm for $4 billion, adding the legendary Star Wars franchise to Disney’s stable of characters.
Disney CEO Robert Iger explained: “This is one of the great entertainment properties of all time, one of the best branded and one of the most valuable, and it’s just fantastic for us to have the opportunity to both buy it, run it and grow it.”
I share Iger’s enthusiasm. Star Wars totally fits with Disney. They can make new movies (Episode VII is scheduled for 2015), theme parks and — of course — consumer products.
In 2013, the important news was on the management front. Disney announced in July that Iger will not retire in 2015 as originally planned. Iger is currently the company’s Chairman and CEO. In 2011, Iger signed a new contract with the company that had him stepping down as chief executive in March 2015 and as executive chairman in mid-2016. Now, the board has asked him to stay in both roles until June 30, 2016.
This is great news since I believe Disney’s performance over the last eight years is due mainly to Bob Iger.
At Giverny Capital, we acquired our shares of Disney in September of 2005 the very day that Iger was named CEO. I had been admiring him for many years (he worked with Tom Murphy at Capital Cities ABC before the merger with Disney). I believed that he was the perfect candidate to lead Disney.
We bought our shares at $24. The company had EPS of $1.33 for the 2005 calendar year. In 2013, they should earn around $3.45. So earnings increased by 160 per cent in eight years or the equivalent of 13 per cent on an annualized basis.
This is an outstanding performance for such a large company. And the stock increased 192 per cent during the same time frame. We feel indebted towards Iger and are very happy that he will stay another three years.
At the current quote of $70, the stock is not as attractively priced as it was in 2005 or in March 2011 when I first wrote about it in this column. But I believe that Disney can earn $4 per share in 2014. So the stock trades at a forward price-earnings ratio of 17.5.
Disney is one of the best multinationals in the world, with some of the most beloved consumer brands and is, I believe, headed by an outstanding CEO. Its slight valuation premium seems to me to be totally warranted.
By François Rochon, Special to THE GAZETTE November 19, 2013
Disney brings an icy world to life in Frozen. The beauty of the consumer products division lies in the fact that it continues to make profits out of movie characters for many years
Photograph by: Disney
MONTREAL — In March 2011, I wrote a detailed column on the Walt Disney Company. The stock was then trading at $42. It reached a record high of $70 last week, up 67 per cent over the 32 months. I believe the rise is totally justified by the solid economic performance of the company during this time frame.
Firstly, let’s look at the latest results. Walt Disney Co. reported record earnings for its fourth quarter and fiscal year ended September 28. Diluted earnings per share (EPS) for the quarter increased 13 per cent to 77 cents from 68 cents in the prior-year quarter. For the year, adjusted EPS increased 10 per cent to $3.39 from $3.13 in 2012.
The Media Networks is still the main contributor to operating profit. It earned $6.8 billion in 2013 (64 per cent of total profits). The main brands are Disney Channel and ESPN. The specialty sport channel is an outstanding business. It was acquired some 17 years ago when Disney merged with Capital Cities ABC. Although Disney’s main target was the ABC broadcast Network, it turned out that the treasure was ESPN.
The other main division is Parks and Resorts: For the fiscal year, revenues increased 9 per cent to $14.1 billion and segment operating income increased 17 per cent to $2.2 billion.
Operating income growth reflected increases at domestic parks and resorts, Disney Vacation Club and Hong Kong Disneyland Resort, partially offset by a decrease at Disneyland Paris and higher pre-opening costs at Shanghai Disney Resort. Growth at domestic parks and resorts was due to increased guest spending, attendance and occupied room nights.
Although studio profits were down 8 per cent for the year, the consumer products division increased profits by 19 per cent.
Disney makes more money selling consumer items of all sorts than from making movies. The beauty of the consumer products division lies in the fact that it continues to make profits out of movie characters for many years — if not decades — after the movie is first released (as with Toy Story or Finding Nemo).
The big news of the fiscal year came at the end of October 2012 when Disney acquired Lucasfilm for $4 billion, adding the legendary Star Wars franchise to Disney’s stable of characters.
Disney CEO Robert Iger explained: “This is one of the great entertainment properties of all time, one of the best branded and one of the most valuable, and it’s just fantastic for us to have the opportunity to both buy it, run it and grow it.”
I share Iger’s enthusiasm. Star Wars totally fits with Disney. They can make new movies (Episode VII is scheduled for 2015), theme parks and — of course — consumer products.
In 2013, the important news was on the management front. Disney announced in July that Iger will not retire in 2015 as originally planned. Iger is currently the company’s Chairman and CEO. In 2011, Iger signed a new contract with the company that had him stepping down as chief executive in March 2015 and as executive chairman in mid-2016. Now, the board has asked him to stay in both roles until June 30, 2016.
This is great news since I believe Disney’s performance over the last eight years is due mainly to Bob Iger.
At Giverny Capital, we acquired our shares of Disney in September of 2005 the very day that Iger was named CEO. I had been admiring him for many years (he worked with Tom Murphy at Capital Cities ABC before the merger with Disney). I believed that he was the perfect candidate to lead Disney.
We bought our shares at $24. The company had EPS of $1.33 for the 2005 calendar year. In 2013, they should earn around $3.45. So earnings increased by 160 per cent in eight years or the equivalent of 13 per cent on an annualized basis.
This is an outstanding performance for such a large company. And the stock increased 192 per cent during the same time frame. We feel indebted towards Iger and are very happy that he will stay another three years.
At the current quote of $70, the stock is not as attractively priced as it was in 2005 or in March 2011 when I first wrote about it in this column. But I believe that Disney can earn $4 per share in 2014. So the stock trades at a forward price-earnings ratio of 17.5.
Disney is one of the best multinationals in the world, with some of the most beloved consumer brands and is, I believe, headed by an outstanding CEO. Its slight valuation premium seems to me to be totally warranted.
