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It was another magical quarter for the Magic Kingdom, thanks to across-the-board success in films, TV and theme parks. Yet for the stock, the good times are about over.
By Robert Walberg
Get the treasure while you can.
The huge success of "Pirates of the Caribbean: Dead Man's Chest" helped Walt Disney (DIS, news, msgs) more than double its quarterly net income and boost annual earnings by an incredible 34% -- its fourth consecutive year of double-digit growth.
It was another magical quarter across the board for the Magic Kingdom.
The film business was the star performer, with hits like "The Chronicles of Narnia: The Lion, the Witch and the Wardrobe" and "Cars," the animated film by Pixar, which Disney acquired earlier this year. The box office bonanza boosted the unit's sales by 33% to $2 billion, turning its year-ago operating loss of $313 million into a $214 million profit.
Meanwhile the shift of Monday Night Football to ESPN from ABC helped secure higher ad rates, while "Desperate Housewives," "Grey's Anatomy" and "Lost" led the stream of hits on the broadcast network. The TV group's operating income rose by 18%. And theme park traffic, per capita spending and hotel occupancy all increased, boosting that units sales by 8% and operating income by 28%.
Impossible success
After years of stagnation, Disney is hitting on all cylinders thanks to the creative talents of its employees and the cost-cutting efforts of management. Yet for the stock, the good times are about over. It will be nearly impossible for Disney to duplicate its success going forward -- especially now that expectations have caught up with performance.
For Disney's stock to extend its 41% run since bottoming January, the company would need to deliver double-digit top and bottom-line growth for many quarters to come. That will be very difficult, considering that the company just enjoyed a near-perfect year when everything went its way.
Looking ahead, it is unlikely that the film division will duplicate this year's success. Even if the next installment of the "Pirates of the Caribbean" franchise shoots its way to the top of the box office, about the only way for it to exceed expectations would be for it to top the all-time list by a considerable margin. Thats possible, but unlikely.
It's also unlikely that Pixar's next film, "Ratatouille," will significantly top the numbers posted by "Cars" given the increased number of animated pictures competing for the lucrative kids market. A surprise hit or two might rescue the group, but investors more likely can expect the division to experience slowing growth in 2007.
TV and parks set to slump
Similarly, the success of ABC is far from guaranteed because guessing the tastes of television viewers is about as difficult as forecasting the fashion demands of teenagers. "Desperate Housewives," "Lost" and "Grey's Anatomy" are all at the top of their game right now and can only go in one direction: down. As the series age, they will almost certainly begin to lose viewers, and fewer viewers translates into fewer ad dollars.
Finally, the theme park unit benefited from a strong economy and a weak dollar. Though a low dollar is apt to continue drawing tourists to the United States and to Disney's parks, a slowing economy could result in less spending on travel and tourism, at least domestically. Given the difficult comparisons, even a modest slowdown in sales and profits would appear magnified.
With Wall Street in love with Disney right now its almost impossible for the house the mouse built to roar again in 2007.
The company should continue to grow, albeit more slowly, but the stock will slow down considerably. As such, investors are advised to sell into the earnings report. I will close out my position in Disney in my Street Patrol portfolio at todays close with a gain of roughly 37%.
http://articles.moneycentral.msn.com/Investing/StreetPatrol/GetDisneyTreasureWhileYouCan.aspx
By Robert Walberg
Get the treasure while you can.
The huge success of "Pirates of the Caribbean: Dead Man's Chest" helped Walt Disney (DIS, news, msgs) more than double its quarterly net income and boost annual earnings by an incredible 34% -- its fourth consecutive year of double-digit growth.
It was another magical quarter across the board for the Magic Kingdom.
The film business was the star performer, with hits like "The Chronicles of Narnia: The Lion, the Witch and the Wardrobe" and "Cars," the animated film by Pixar, which Disney acquired earlier this year. The box office bonanza boosted the unit's sales by 33% to $2 billion, turning its year-ago operating loss of $313 million into a $214 million profit.
Meanwhile the shift of Monday Night Football to ESPN from ABC helped secure higher ad rates, while "Desperate Housewives," "Grey's Anatomy" and "Lost" led the stream of hits on the broadcast network. The TV group's operating income rose by 18%. And theme park traffic, per capita spending and hotel occupancy all increased, boosting that units sales by 8% and operating income by 28%.
Impossible success
After years of stagnation, Disney is hitting on all cylinders thanks to the creative talents of its employees and the cost-cutting efforts of management. Yet for the stock, the good times are about over. It will be nearly impossible for Disney to duplicate its success going forward -- especially now that expectations have caught up with performance.
For Disney's stock to extend its 41% run since bottoming January, the company would need to deliver double-digit top and bottom-line growth for many quarters to come. That will be very difficult, considering that the company just enjoyed a near-perfect year when everything went its way.
Looking ahead, it is unlikely that the film division will duplicate this year's success. Even if the next installment of the "Pirates of the Caribbean" franchise shoots its way to the top of the box office, about the only way for it to exceed expectations would be for it to top the all-time list by a considerable margin. Thats possible, but unlikely.
It's also unlikely that Pixar's next film, "Ratatouille," will significantly top the numbers posted by "Cars" given the increased number of animated pictures competing for the lucrative kids market. A surprise hit or two might rescue the group, but investors more likely can expect the division to experience slowing growth in 2007.
TV and parks set to slump
Similarly, the success of ABC is far from guaranteed because guessing the tastes of television viewers is about as difficult as forecasting the fashion demands of teenagers. "Desperate Housewives," "Lost" and "Grey's Anatomy" are all at the top of their game right now and can only go in one direction: down. As the series age, they will almost certainly begin to lose viewers, and fewer viewers translates into fewer ad dollars.
Finally, the theme park unit benefited from a strong economy and a weak dollar. Though a low dollar is apt to continue drawing tourists to the United States and to Disney's parks, a slowing economy could result in less spending on travel and tourism, at least domestically. Given the difficult comparisons, even a modest slowdown in sales and profits would appear magnified.
With Wall Street in love with Disney right now its almost impossible for the house the mouse built to roar again in 2007.
The company should continue to grow, albeit more slowly, but the stock will slow down considerably. As such, investors are advised to sell into the earnings report. I will close out my position in Disney in my Street Patrol portfolio at todays close with a gain of roughly 37%.
http://articles.moneycentral.msn.com/Investing/StreetPatrol/GetDisneyTreasureWhileYouCan.aspx
