The Walt Disney Company (NYSE:DIS) yesterday reported its earnings for F3Q 2013. Disney has recently suffered losses on projects like The Lone Ranger with Johnny DeppHowever Iron Man 3 (under Marvel) raked in $1.2billion this summer. Disney acquired Marvel in 2009 for $4 billion. Based on Walt Disney Co.’s recently reported preliminary financial results, we analyze the company today relative to its peers.

The Walt Disney Company logo

Are there questions about the company’s long-term strategy?

The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million) 2013-06-30 2013-03-31 2012-12-31 2012-09-30 2012-06-30
Revenues 11,578.0 10,554.0 11,341.0 10,782.0 11,088.0
Revenue Growth % 9.7 (6.9) 5.2 (2.8) 15.2
Net Income 1,847.0 1,513.0 1,382.0 1,244.0 1,831.0
Net Income Growth % 22.1 9.5 11.1 (32.1) 60.2
Net Margin % 16.0 14.3 12.2 11.5 16.5
ROE % (Annualized) 17.3 14.6 13.7 12.5 18.8
ROA % (Annualized) 9.1 7.5 7.1 6.6 9.7

Peers-set used for analysis

We use a peer set of the following companies for our  analysis of Walt Disney Co.: Comcast Corp. Cl A (NASDAQ:CMCSA), Twenty-First Century Fox Inc. Class B (NASDAQ:FOX), Time Warner Inc.(NYSE:TWX), Viacom Inc. Cl A (NASDAQ:VIA), CBS Corp Cl B (NYSE:CBS), Vivendi (EURONEXT:VIV),Sony Corp. ADS (NYSE:SNE), DreamWorks Animation SKG Inc. Cl A (NASDAQ:DWA) and Lions Gate Entertainment Corp. (NYSE:LGF).

The Walt Disney Company (NYSE:DIS): Market Expectations of Growth

The Walt Disney Company (NYSE:DIS)  currently trades at a higher Price/Book ratio (2.8) than its peer median (2.0). The market expects Disney to grow at about the same rate as its chosen peers (PE of 20.3 compared to peer median of 20.3) and to maintain the peer median return (ROE of 14.3%) it currently generates.

The company attempts to achieve high profit margins (currently 13.5% vs. peer median of 10.8%) through differentiated products. It currently operates with peer median asset turns of 0.6x. Disney’s net margin is its highest relative to the last five years and compares to a low of 9.1% in 2009.

Can The Walt Disney Company (NYSE:DIS)  improve its cost structure?

The company’s year-on-year change in revenue of 3.4% is better than the peer median but it has not resulted in the same quality of annual earnings growth (18.2% compared to the peer median of 22.4%). This suggests that Disney’s current relative cost structure needs to improve to move to a leading position among its peers. The company is currently converting every 1% of change in revenue into 5.4% change in annual reported earnings.

Disney’s return on assets is above its peer median both in the current period (7.7% vs. peer median 5.7%) and also over the past five years (6.6% vs. peer median 3.1%). This performance suggests that the company’s relatively high operating returns are sustainable.

The company’s comparatively low gross margin of 26.2% versus peer median of 45.2% suggests that it follows a non-differentiated strategy or is in a pricing constrained position. However, Disney’s bottom-line operating performance is better than peer median (pre-tax margins of 21.5% compared to peer median 17.8%) suggesting relatively tight control on operating costs.

Are there questions about The Walt Disney Company (NYSE:DIS) ‘s  long-term strategy?


Trend Charts

Quarterly Revenues-Trend for Walt Disney (NYSE:DIS)
Annual Revenues-Trend for Walt Disney (NYSE:DIS). Chart from CapitalCube
 Quarterly Net Margin -Trend for Walt Disney (NYSE:DIS). Chart from CapitalCube
 Annual Net Margin trend for Walt Disney (NYSE:DIS). Chart from CapitalCube

This article was first published on the CapitalCube Blog, Full Disclaimer.