Bullish Hedged Trade on Disney Looks Good Following Earnings

5/7 - "Last night's quarter was a beauty. Earnings from continuing operations climbed 23% to $1.1 billion, or $0.58 a share. Revenue inched 10% higher to $8.7 billion, with all four of Disney's operating segments posting year-over-year gains."

"Wall Street was nervously anticipating the company's theme park numbers, and they were brilliant. Revenue and operating profits rose 11% and 33%, respectively...The company's media networks were also a concern. Disney's cable properties, like ESPN and the Disney Channel, would surely do well, since they're mostly subscriber-based (like Viacom (NYSE: VIA) and Time Warner (NYSE: TWX)), but would the ad-heavy and strike-shortened ABC bring down the segment? No way."

"...until (CEO Bob) Iger proves mortal, it's a sucker's bet to bet against Disney.

5/8 - "So how did the parks and resorts stay so strong? Internationally, the weak dollar certainly helped, and Disneyland Paris finally started taking off. The U.S. parks also benefited from the weak dollar, which drove foreign tourists to stay at the parks and spend big. But what's most surprising is that U.S. visitors continued to spend at the parks, no matter how tight their pocketbooks."

"Iger attributed this to the parks shifting more of their hotels to a more moderate price-range, giving families the option of an affordable getaway. Lower priced rooms and the benefit of perks for staying at hotels on the park property has boosted Disney's share of tourist hotel spending. Bottom line: Americans may not be spending on travel overseas, but they're not giving up their annual family vacation, and Disneyland seems to offer a more accessible option here than ever."

"I spoke to Iger about Disney's digital revenues--a hot topic considering that we're on the heels of a writers' strike over digital revenues and facing a potential strike from the actors guild over the same revenue stream. Iger said that of Disney's roughly $35 billion in revenues this year, $2 billion will be from digital, about half of which are from online sales of vacation packages. Iger said he thinks about digital differently for Disney than he thinks the other media companies do. He says it's not about a new revenue stream, it's about giving consumers more options about how and where to consume Disney content.

Those extra options should retain consumers while also eventually growing both the top and bottom line."

5/8 - "(Disney's) theme park revenues and earnings for the quarter ended March 31, released on Tuesday, were impressive. Its revenues were up 11%, and operating income was up 33%.

But, there are a couple of caveats. The press release noted:

'Higher attendance was primarily driven by the benefit of the shift of the Easter holiday. '

The other caveat was that the number of foreign visitors to Disney’s U.S. theme parks was up 25% compared to the year ago period."

"...how much of Disney’s domestic theme park strength was driven by a weak dollar and foreign visitors? If that’s what’s driving it, then this is consistent with a weak U.S. economy."

5/7 - "Wall St. opened the champagne and passed around the caviar. The Disney theme park business, which analysts view as a proxy for consumer spending, posted a revenue increase of 11% to $2.725 billion.

Of course, no one bothered to read the fine print. Easter moved into the first quarter this year. Last year it was in the second...The total increase in Disney theme park revenue was well under $300 million. Given the shift in Easter, the number was probably closer to flat. That should indicate that consumer spending is at least OK, but only first class fools would think that is true."

"Disney resorts are not something the average man on the street can afford these days. With gas close to $4 a gallon, airlines raising ticket prices to stay out of Chapter 11, and people worried about their jobs, the folks going off to see Mickey are probably well-off compared to most families.

Take a look at the guy going to Disney Land. He drive a $35,000 car. He and his wife both work. He has on a Ralph Lauren shirt. He even tipped the doorman at the hotel...He is not the guy economists are worried about."