Inside Disney's 2003 Quarter One Earnings Call
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On January 30, 2003, The Walt Disney Company held a conference call to discuss the announcement of earnings for the first quarter of the 2003 fiscal year. According to the company’s earnings release, revenues increased 6% to $7.5 billion and segment operating income increased 3% to $778 million. Earnings per share were 13 cents. The earnings conference call is an opportunity for Disney executives to comment on the earnings and answer questions from investors. The conference call featured Michael D. Eisner who is Chairman and Chief Executive Officer, Robert A. Iger the President and Chief Operating Officer, and Thomas O. Staggs who is Senior Executive Vice President and Chief Financial Officer.
Eisner started the call off saying he was pleased with the earnings report, as he feels they have capitalized on the investments they have made in the past few years. He used Hong Kong and Disney’s presence there as an example of the Disney brand’s growth. Then he handed it off to Tom Staggs who highlighted some parts of the earnings release. Performance at parks and resorts was robust. Revenues increased 8% to $1.5 billion and segment operating income increased 20% to $225 million. There was an increase in per capita spending at both domestic resorts and there was a length of stay increase of single digit percentage points. He said the enhancements made to Disney California’s Adventure were an important part of the robust growth at the parks. The increased performance was partly caused by a reduction in special ticketing and promotions. The Disneyland Resort had an increase in international tourism which is important in the resort’s quest to become a multi-day vacation destination.
Tom then went to the Broadcast network, ABC. He said that ABC had 90 percent of their advertisers pick-up their options which shows most are happy with ABC’s performance. An increase in political advertising also contributed to the performance of Disney owned television stations. At ESPN, an increase in broadcasting rights costs put a damper on growth. ESPN has programming deals with the NFL, MLB, and NBA. The timing of these payments offset the growth from the improved advertising market.
Next was consumer products here revenues for the quarter decreased 6% to $787 million and operating income increased 9% to $190 million. Tom expects to double the sales of princess merchandise in the coming year. An interesting note, DVD sales account for 80 percent of units sold. Disney benefits from this because the profit margin on DVDs is higher than it is for VHS. Improvements in this segment are also attributed to the success of the Kingdom Hearts video game, and the growth of Disney Publishing, especially in Europe.
Next Bob Iger then spent time talking about focuses for the upcoming year. He discussed the additions to Disney’s California Adventure, including Disney’s Aladdin- A Musical Spectacular, which he said has had the highest guest satisfaction rating of any entertainment offering at the parks. To show that the resort is now a multi-day destination, they launched the Whole New World marketing campaign for the resort. Then he went on to talk about Destination Disney(CRM), which he feels will try to increase the frequency of visitation from frequent guests. Did you know that 75 percent of Walt Disney World guests are repeat visitors? At ABC, Bob mentioned they finished the November sweeps in 2nd place, and was the only network to show growth in the key demographic of 18-49 year olds. Bob feels reality programming can be used to heat up a dead time slot, but that long-term strength depends on the development of quality scripted show. This sentiment is in line with what Susan Lynne, head of ABC said at a recent conference. ABC is also looking to revenue from having the Oscars and the NBA finals. Bob’s goals are to build on the young adult audience and development of its freshmen comedies. He also wants to leverage the ESPN brand. In 2002, ESPN had 18 of the top 20 rated basic cable telecasts. In addition, in 2002 ESPN’s ratings grew 16% and ESPN and ESPN2 were rated number 1 and 2 in terms of value to cable operators. He then talked about the merging of Walt Disney Television Animation with The Disney Channel, which he hopes will develop new franchises. At Consumer Products, in January they launched the Disney Paint initiative, which an example of exploiting the Disney franchises.
Then Michael wanted to discuss corporate governance. He mentioned the reduction of the board from 17 members to 13 members. He thanked the board members that were not standing for reelection and went on to discuss further ways the Walt Disney Company were increasing corporate governance. Then it was time for the question and answer segment of the call, where investors have an opportunity to ask what is on their mind. When Pixar was brought up by a caller, Michael said he was still optimistic and encouraged that they will continue their relationship with Pixar. He is not in a hurry, however because there are still three films left under their current arrangement.. To answer the Pooh question, counsel was brought in and said there was really no news to report, but that in the upcoming week a motion will be filed that will shed some light on the recent past in regards to the issue. Another caller asked about the need to strike a revenue sharing agreement on DVD rentals with Blockbuster. Bob mentioned how with the DVD market most guests are more interested in purchasing then renting, Michael then discussed new technologies that will allow them to capitalize on the rental market if a deal with Blockbuster can not be reached including an evaporating DVD where after time the move will disappear off the disc. Michael used it as an example of using technology to allow Disney’s product to be distributed where otherwise there might have been a roadblock. When discussing the upcoming DVD slate, thy discussed the upcoming release of Who Framed Roger Rabbit, and the platinum edition of The Lion King. When asked about further development of the parks, Mission: Space and Tower of Terror were given as examples. The Many Adventures of Winnie the Pooh was not mentioned. When mentioning Mission: Space, Michael slipped and said it would be important in the revitalization of Epcot, before correcting himself and saying continued success. When a caller asked about the Disney Cruise Line, Disney management did not seem to be worried about fears of war, that have plagued the rest of the cruise industry. They also feel they have overcome any negative financial impact of the virus problem late last year. Michael Eisner mentioned that he was happy that when the President of the United States’ family took the cruise no one got sick.
The earnings conference call is always a unique opportunity to understand the vision of the company and to learn what the goals of Disney management are. The conference call can always be analyzed and investors can try and read between the lines. The forward looking statements provide a window in to the company’s future which might be of interest to Disney fans that are trying to gain a better grasp on the company as a whole.
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to the Earnings Conference Call online
Instructions are also here for listening to it on the phone through February 5
-- Posted February 3, 2003
-- Story by Benjamin Breitbart