The Walt Disney Co. :DIS-US: Earnings Analysis: 2017 By the Numbers : November 24, 2017

The Walt Disney Co. reports financial results for the year ended September 30, 2017.

We analyze the earnings along side the following peers of The Walt Disney Co. – Twenty-First Century Fox, Inc. Class A, Viacom Inc. Class B, Comcast Corporation Class A, CBS Corporation Class B, Time Warner Inc., Sony Corporation Sponsored ADR, AMC Networks Inc. Class A and Discovery Communications, Inc. Class A (FOXA-US, VIAB-US, CMCSA-US, CBS-US, TWX-US, SNE-US, AMCX-US and DISCA-US) that have also reported for this period.

Highlights

  • Gross margins narrowed from 41.38% to 39.80% compared to the same period last year, operating (EBITDA) margins now 29.99% from 30.13%.
  • Year-on-year change in operating cash flow of -6.58% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017 2016 2015 2014 2013
Relevant Numbers (Annual)
Revenues 54943 55368 52003 48737 44958
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 8980 9391 8382 7501 6136
Earnings Growth (YOY) -4.38 12.04 11.75 22.25 7.99
Net Margin 16.34 16.96 16.12 15.39 13.65
EPS 5.69 5.73 4.9 4.26 3.38
Return on Equity 19.21 19.57 17.31 15.57 13.62
Return on Assets 9.56 10.42 9.73 9.07 7.86

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Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 41.38% to 39.80%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 30.13% to 29.99% in this time frame. For comparison, gross margins were 41.38% and EBITDA margins were 30.13% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

DIS-US’s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days are now -20.16 days from -6.03 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

DIS-US’s change in operating cash flow of -6.58% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 25.57% to 24.92% and (2) one-time items that contributed to a decrease in pretax margins from 26.85% to 25.10%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for The Walt Disney Co.

Company Profile

The Walt Disney Co. is a diversified international family entertainment and media enterprise. It operates through four business segments: Media Networks, Parks & Resorts, Studio Entertainment and Consumer Products & Interactive Media. The Media Networks segment includes cable and broadcast television networks, television production and distribution operations, domestic television stations, radio networks and stations. The Parks and Resorts segment owns and operates the Walt Disney World Resort in Florida; the Disneyland Resort in California; Aulani, a Disney Resort & Spa in Hawaii; the Disney Vacation Club; the Disney Cruise Line; and Adventures by Disney. The Studio Entertainment segment produces and acquires live-action and animated motion pictures, direct-to-video content, musical recordings and live stage plays. This segment distributes films primarily under the Walt Disney Pictures, Pixar, Marvel, Lucasfilm and Touchstone banners. The Consumer Products and Interactive Media segment licenses the company’s trade names, characters and visual and literary properties to various manufacturers, game developers, publishers and retailers throughout the world. It also develops and publishes games, primarily for mobile platforms, and books, magazines and comic books. This segment also distributes branded merchandise directly through retail, online and wholesale businesses. The Walt Disney was founded by Walter Elias Disney on October 16, 1923 and is headquartered in Burbank, CA.

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