Walt Disney Company (DIS) Q2 2013 Earnings Preview: Profit Up As Lucasfilm Acquisition Creates A Force To Be Reckoned With

Walt Disney Compound
The silhouette of Disney character Mickey Mouse, which tops fencing at the Walt Disney Co. compound in Burbank, Calif.

The Walt Disney Company (NYSE:DIS) is expected to report substantially higher second-quarter profit on Tuesday, driven by unusually strong attendance at its Florida theme-parks complex, sold-out bookings on Disney cruises and continued ad growth at the virtually competition-free ESPN.

The world’s largest media conglomerate, based in Burbank, Calif., is expected to show net income of $1.39 billion, or 76 cents a share, for the period ended March 31. That’s a 31 percent increase from $1.14 billion, or 58 cents a share, for the same period last year. Analysts polled by Thomson Reuters expect Disney's revenue will rise 8.9 percent to $10.48 billion from $9.63 billion a year earlier. The company is expected to report results at about 4:15 p.m. EDT, with a live conference call webcast starting at 5 p.m.

The public-relations nightmare that erupted following an engine fire that left Carnival Cruise Line’s Triumph stranded at sea for several days in February didn’t seem to hurt topline growth for Disney’s Theme Parks & Resorts unit, which includes Disney Cruise Line. According to David Miller, an analyst with B. Riley & Co., Disney’s second-largest unit is expected to post revenue of $3.4 billion, up 18 percent from $2.9 billion for the same period last year.

Disney Cruise Line bookings were sold out during the quarter, according to Miller. Meanwhile, attendance was so strong at Disney’s complex of theme parks near Orlando, Fla., that visitors were reportedly turned away during the last week in March, when an early Easter fell on the last day of the month.

“[T]here have been unconfirmed reports swimming around the blogosphere that Disney corporate was forced to initiate a ‘Phase 3’ shutdown sequence at various times during that last week in March,” Miller wrote in an April research note. “‘Phase 3’ means that the parks are so crowded that you will be turned away unless you are staying at one of the hotels on-property, or are an annual pass holder.”

Disney’s largest unit, Media Networks, is expected to report a strong quarter as well, thanks to continued advertising growth at the unbeatable ESPN, which will likely be offset only slightly by a weak performance at ABC Family. The unit is expected to post revenue of just under $5 billion, up from $4.7 billion for the same period last year.

With a slow start overall for the American box office in 2013 -- in particular, at Warner Bros. (NYSE:TXW), which saw a series of flops this quarter -- Walt Disney Pictures is a virtual outlier. Disney’s “Oz the Great and Powerful” has been by far the biggest hit in an otherwise sluggish movie season, raking in $227.4 million domestically and $483.6 million worldwide. In all, Disney’s Studio Entertainment unit is expected to post revenue of $1.3 billion, up from $1.2 billion for the same period last year.

“Disney is the only studio in positive territory,” wrote Tim Nollen, a media analyst with Macquarie Capital, in an April research note.

Finally, the second quarter saw the finalization of Disney’s widely reported acquisition of the privately held Lucasfilm Ltd., which owns the “Star Wars” franchise. Valued at more than $4 billion, the deal gives Disney control over one of the world’s most enduring pop-culture brands, adding to a portfolio that includes the Muppets and Marvel Comics. Most analysts see the deal as a strategic win in the long term and several “Star Wars”-related projects have already been announced.

“The deal is expected to result in slight earnings dilution in fiscal 2013 and fiscal 2014, with accretion expected in fiscal 2015 when a new ‘Star Wars’ film is released,” wrote Jeffrey S. Thomison, an analyst with Hilliard Lyons, in a February research note. “We believe the long-term benefits of the acquisition are substantial.”

Disney shares closed up 1.4 percent on Friday at $64.80.

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