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March 30, 2007

Disney's March Quarter Shaping Up Well

As mentioned in my overview of the 2007 Prudential Midwest Media Day, I came away from my meeting with Disney (DIS) with increased confidence in the outlook for March quarter earnings. The March quarter represents 2Q07 for DIS and will be reported after the close on May 8th with a conference beginning at 4:30 EDT.

There are several reasons for increased optimism about the March quarter including (1) strong scatter market pricing at ABC, (2) mid single digit gains in DVD revenue, ( 3) decent performance at the box office from this year's releases relative to what was expected to be a tough comparison, (4) fewer movie releases this year possibly offset by marketing costs for Meet The Robinsons falling in the March quarter against a June quarter theatrical release, (5) flat overall theme park attendance which is trending above conservative analyst estimates, and (6) ratings strength at ESPN and the Disney Channel and the financial benefit of ABC's taking over the #1 spot on Thursday's, the most lucrative night on TV..

The debate over DIS shares continues to revolve around the growth rate in the next 18 months....

A better than expected March quarter would put points on the board for the bulls but still won’t answer the all the questions due to continuing tough comparisons, especially in the June quarter, higher sports expenses for the NFL and NASCAR, and increasing concern about the health of the economy and how that might impact travel to the company's theme parks.

I am sticking with Northlake's long positions in DIS although upside is limited to 10-15% based on my current expectations. If the shares were to move up another couple of dollars without an increase in estimates, I'd probably take profits.

Posted by Steve Birenberg at March 30, 2007 11:22 AM in DIS