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November 22, 2005

Follow-Up Data Points From Disney Conference Call

After reading through analyst commentary on Disney (DIS) this morning I wanted to provide a few additional data points that were not included in my earnings summary. These points do not change my conclusion that the quarter was slightly worse than expected and the outlook for share gains in the next few months is worse than I previously expected. However, 2006 still looks like a strong year with multiple drivers which should limit downside in the shares to this morning's initial decline due to the disappointing quarter....

Here are some follow-up points I may have missed:

• Three of the five segments reported mid-teens or better growth although all the segments were either inline or slightly below analyst estimates.

• Attendance at the parks in FL and CA was up 10% and 15%, respectively last quarter. December quarter bookings are trending up mid-single digits. This is a positive as it suggests that so far at least the fears about fuel and home heating costs are not hurting attendance.

• Scatter market pricing for ads at ABC is up mid-single digits over upfront pricing. Scatter pricing is up double digits at ESPN and ABC Family.

• TV and Radio pacings remain weak. After growing in the very low single digits in the September quarter, trends in December are unchanged.

• DIS is buying back a lot of stock. In the just concluded fiscal year, the company bought back 91 million shares for $2.4 billion, including 42 million shares in the September quarter. One analyst noted that an additional 40 million shares have already been bought this quarter. This is also a big positive as it shows capital allocation discipline that is less apparent at other major media companies
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• Earnings estimates are coming very slight for 2006 but still represent solid double digit growth.

Once again, the quarter and the back end loaded FY06 make me less optimistic about DIS stock performance over the next few months. I remain long DIS but might change my mind, particularly if the shares rebound from this morning's initial sell-off. DIS does have several near-term catalysts including the possibility of the sale of the radio stations and a strong opening Thanksgiving weekend for The Lion, the Witch, and the Wardrode.

Posted by Steve Birenberg at November 22, 2005 09:44 AM in DIS