Disney (DIS) reported a blowout Q1 yesterday after the close, recording beats across almost every meaningful metric. Revenue, OI, and EPS came in at $8.7 billion (+9% yoy), $2.14 billion (+21% yoy), and $0.58 (+34% yoy), trouncing consensus of $8.5 billion, $1.79 billion, and $0.51 respectively. Goldman was surprised by how well DIS weathered macro headwinds, especially at the economically sensitive theme park divison where attendance grew by 5%. Goldman was optimistic, but remains somewhat cautious on two fronts. First, Theme Parks:
Domestic Theme Parks attendance growth was 5% yoy and would have still been up even without the benefit of Easter in the quarter… Based on bookings, Theme Parks attendance is trending down yoy in 3QFY08… We assume an attendance decline of 2% in 3QFY08, combined with continued higher per capita spending, will generate revenue and OI growth of 4% yoy and 3%, respectively, for the quarter.
The second area of concern for Goldman is Media Networks and a slowdown in advertising at ABC:
Media Networks delivered revenue and OI growth of 5% and 14%, respectively, in the quarter. At Broadcasting, audience decliens from the WGA strike were offset by lower programming costs at ABC, and Stations benefited from higher political spending yoy. Advertising revenue growth in the high single digits at ESPN contributed to 14% OI growth in Cable Nets. Looking ahead to 3QY08, tends look less favourable for Media Nets because: 1) increased programming costs due to a timing shift from the WGA strike and accelerated production ahead of a possible actors’ strike will pressure margins at ABC; 2) advertising revenue at TV Stations is pacing down mid-single digits yoy in 3QFY08; and 3) ESPN advertising growth may see a deceleration from high single digit growth in 2QFY08 to mid-to-high-single digit growth in 3QFY08.
Goldman ups its estimates to “reflect outperformance during 2QFY08.” 3QFY08 EPS to $0.57 from $0.53, but 4QFY08 estimate is lowered 1 cent to $0.47 due to “lower broadcast expectations. FY2008, FY2009, and FY2010 estimates to $2.25, $2.36, and $2.57 from $2.13, $2.26, and $2.44. Rating remains Buy.
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