The Walt Disney Co. reports largest quarterly earnings in the history
The Walt Disney Company has reported earnings for its third fiscal quarter and nine months ended June 30, 2012. Diluted earnings per share (EPS) for the third quarter increased 31% to $1.01 from $0.77 in the prior-year quarter. Diluted EPS for the nine-months ended June 30, 2012 was $2.44 compared to $1.93 in the prior-year period.
“We had a phenomenal third quarter, delivering the largest quarterly earnings in the history of our company,” said Robert A. Iger, Chairman and CEO of The Walt Disney Company. “Earnings per share were up 31% over last year, driven by growth in every one of our businesses. We also delivered record earnings per share for the first nine months of our fiscal year, and we believe our results clearly demonstrate Disney’s unique value proposition and great potential to deliver long-term growth.”
EPS for the current quarter includes restructuring and impairment charges totaling $7 million, which had no net impact on EPS, while the prior-year quarter included restructuring and impairment charges totaling $34 million, which had a negative impact of $0.01 on EPS. Excluding these charges, EPS for the quarter increased 29% to $1.01 from $0.78 in the prior-year quarter.
EPS for the current nine-month period included a $184 million non-cash gain recorded in connection with the acquisition of a controlling interest in UTV Software Communication Limited (UTV) and $51 million of restructuring and impairment charges. On an after-tax basis, these items benefitted EPS by $0.05. The UTV gain was recorded in “Other Income” in the Consolidated Statements of Income.
EPS for the prior-year nine months included $75 million of gains from the sales of Miramax and BASS and $46 million of restructuring and impairment charges. On an after-tax basis, these items had a negative impact on EPS of $0.02. Excluding these and the current-year items discussed in the prior paragraph, EPS for the nine-month period increased 23% to $2.39 from $1.95 in the prior-year period.
Media Networks revenues for the quarter increased 3% to $5.1 billion and segment operating income increased 2% to $2.1 billion.
Operating income at Cable Networks increased $14 million to $1.9 billion for the quarter due to growth at the domestic Disney Channels and ABC Family, partially offset by a decrease at ESPN. Higher operating income at the domestic Disney Channels was due to increased affiliate revenue from contractual rate increases, while the increase at ABC Family reflected lower marketing and sales costs due to fewer series premieres. The decrease at ESPN was driven by lower recognition of deferred affiliate fees related to annual programming commitments. However, the benefits of contractual rate increases and subscriber growth on affiliate fees along with higher advertising revenue more than offset increased programming and production costs at ESPN. Advertising revenue
growth at ESPN was driven by higher rates, increased units sold and improved ratings, including the benefit of a shift in the timing of NBA games due to the NBA lockout. The decrease in deferred affiliate fee recognition was due to a change in contractual provisions related to annual programming commitments in an affiliate contract, which shifted the recognition of $139 million of affiliate revenue to the first and second quarter of the current year as compared to the third quarter of the prior year. Higher programming and production costs were due to the shift in the timing of NBA games and higher contractual rates for NBA and Major League Baseball programming.
Operating income at Broadcasting increased $18 million to $268 million due to higher affiliate and royalty revenue and lower programming and production costs, partially offset by lower Network advertising revenues. Advertising revenues at the Network decreased modestly as lower ratings were partially offset by higher rates.
Parks and Resorts
Parks and Resorts revenues for the quarter increased 9% to $3.4 billion and segment operating income increased 21% to $630 million. Results for the quarter were driven by increases at Tokyo Disney Resort, Disney Cruise Line and the domestic parks and resorts. The increase at Tokyo Disney Resort reflected the loss of income from the March 2011 earthquake and tsunami in Japan, which resulted in a temporary suspension of operations and a reduction in volume after reopening in the prior-year quarter, and the collection of related business interruption insurance proceeds in the current-year quarter. Operating income growth at Disney Cruise Line was due to the first full quarter of operations of the Disney Fantasy. Higher operating income at the domestic parks and resorts was primarily due to increased guest spending at both Walt Disney World Resort and Disneyland Resort and attendance growth at Disneyland Resort, partially offset by higher costs. Increased guest spending reflected higher average ticket prices, food, beverage and merchandise spending, and daily hotel room rates. Higher costs were driven by labor cost inflation, resort expansion and new guest offerings, and increased investments in systems infrastructure at Walt Disney World Resort.
Studio Entertainment revenues were essentially flat at $1.6 billion and segment operating income increased $264 million to $313 million. Higher operating income was primarily due to increases in worldwide theatrical results and worldwide television distribution, partially offset by a decrease in worldwide home entertainment. Higher worldwide theatrical results reflected the performance of the current quarter releases including Marvel’s The Avengers and Brave compared to Pirates of the Caribbean: On Stranger Tides and Cars 2 in the prior-year quarter. The increase in worldwide television was driven by higher sales in international markets due to stronger performing titles available in the current quarter. The decrease in worldwide home entertainment was primarily due to a decline in unit sales in the current quarter. Significant current quarter titles included John Carter and The Muppets while the prior-year quarter included Tron: Legacy, Tangled and Gnomeo & Juliet.
Consumer Products revenues increased 8% to $742 million and segment operating income increased 35% to $209 million. Higher operating income was primarily due to increases at Merchandise Licensing and at our retail business. The increase at Merchandise Licensing was driven by lower revenue share with the Studio Entertainment segment and higher licensing revenue in Japan as a result of the impact of the earthquake and tsunami in the prior year. Lower revenue share with Studio Entertainment in the current-year quarter reflected a higher mix of revenues from properties subject to the revenue share in the prior-year quarter driven by sales of Cars merchandise. At retail business, higher operating income was driven by new stores in North America and Europe and higher online sales.
Interactive revenue for the quarter decreased 22% to $196 million and segment operating results improved from a loss of $86 million in the prior-year quarter to a loss of $42 million in the current quarter. Operating results were driven by improved performance from our games and online businesses. Improved results from our games business were driven by an increase at social games due to lower acquisition accounting impacts, which had an adverse impact on the prior-year quarter, and improved title performance in the current quarter. Console game results for the current quarter were comparable to the prior-year quarter as lower sales volume was offset by minimum guarantee recognition and lower marketing and product development costs. Lower sales volume reflected fewer significant titles in release in the current year and the strong prior year performance of Cars 2 and Lego Pirates of the Caribbean compared to Brave in the current quarter. Lower product development costs reflected our ongoing shift from console games to social and other interactive platforms. Online results reflected higher cost allocations to other company businesses related to website design and maintenance.
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