When the Walt Disney Co. announced quarterly results last week, it was more than a surprisingly good report of earnings. It was also a vindication of sorts.
Consider that Disney and its chief executive, Robert Iger, were castigated in 2009 for allegedly overpaying to buy Marvel Comics for $4 billion – a 29 percent premium! – and again last year (albeit less so) when they bought Lucasfilm and its “Star Wars” franchise for another $4 billion. And, of course, the Burbank company paid a near-shocking $7.4 billion to buy Pixar in 2006.
Add to that the questioning Iger took for expensively rehabbing some of its theme parks and building a cruise ship, among other things. The implication: Iger seemed like a spendthrift, blowing billions chasing returns that seemed so uncertain in the midst of a recession, or a recessionlike slow economy. Most other CEOs weren’t doing that.
And then last week the vindication arrived. Revenue up 10 percent and earnings up a whopping 32 percent.
What was particularly impressive in the earnings report was that no odd event or one-time benefit, to speak of, distorted the results. It was pretty much a great performance across the board. (One notable exception: Operating earnings at Disney’s ABC television network swooned an alarming 40 percent.)
In short, Disney’s big investments are paying off now, showing that a strategic acquisition coupled with good management can transform yesterday’s pricey purchase into today’s bargain. The “Iron Man 3” movie, for example, is expected to gross $1 billion by the time you read this, demonstrating again that Marvel Studios is an important contributor.
An even better example is Disney’s resorts and parks division (which includes the cruise ships). Operating earnings were up 73 percent, mainly due to increased patronage, thanks largely to all the additions and improvements. That big increase probably doesn’t surprise those who stood in an hours-long line to board the new Cars Land ride at the California Adventure Park.
Some said that the theme parks benefited from having both the new year’s and Easter-spring break holiday in the same quarter. But one financial writer for Motley Fool last week pointed out that the Universal Studios theme parks enjoyed the same calendar anomaly, and Universal’s theme park segment was up 12 percent. Twelve percent is nice, but it’s no 73 percent.
And the report from the Disney last week was something beyond a vindication. It stands as an example of how chief executives should manage today.
Corporate heads, as a group, have been mighty cautious, using market tumult of the past as an excuse to stand pat for too many years. They’ve been hoarding cash (think Apple) and buying back shares (think just about every company), apparently fearful of making big acquisitions when the price is low. Compared to the bold decision-makers in the Mouse House, they’ve been pipsqueaks.
Michael Santoli, writing last week for the Daily Ticker, said, “instead of treading gingerly, Iger has aggressively spent to expand Disney parks, launched a cruise line and spent heavily and opportunistically to purchase three of the most distinctive entertainment franchises ever created: Pixar, Marvel and Lucasfilm’s ‘Star Wars.’ ”
Certainly not all has been great. The “John Carter” movie was a spectacular belly-flop, there was a botched appointment of a studio chief, and ABC seems to be wandering in the desert with no path to water. And personally, I think the customer experience at the Disney parks is going downhill.
Still, since Iger took over, Santoli noted, Disney shares are up 180 percent compared with about 40 percent for the Standard & Poor’s 500 Index.
And in that span, Disney went from being among the biggest companies in Los Angeles County to the biggest by far with a market value of about $119 billion.
That’s vindication. And a good example for other CEOs.
Charles Crumpley is editor of the Business Journal. He can be reached at firstname.lastname@example.org.
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