Disney Reports Q3 2015
The Walt Disney Company reported record quarterly earnings of $2.5 billion for its third fiscal quarter ended June 27, 2015, compared to $2.2 billion for the prior-year quarter. Diluted earnings per share (EPS) for the third quarter increased 13 percent to $1.45 from $1.28 in the prior-year quarter. EPS for the nine months ended June 27, 2015, increased 16 percent to $3.95 from $3.40 in the prior-year period. Excluding certain items affecting comparability, EPS for the nine months increased 15 percent.
“We’re very pleased with our performance in the third quarter, with record net income and diluted earnings per share of $1.45, up 13 percent from the prior year,” said Robert Iger, chairman and CEO, The Walt Disney Company. “The strong results across our many diverse lines of business demonstrate the power of our unparalleled brands, franchises, and creative content.”
Media Networks revenues for the quarter increased 5 percent to $5.8 billion and segment operating income increased 4 percent to $2.4 billion.
Operating income at Cable Networks increased 7 percent to $2.1 billion for the quarter due to growth at the domestic Disney Channels, ABC Family, and ESPN. The increases at the domestic Disney Channels and ABC Family were due to higher program sales and increased affiliate revenue, driven by contractual rate increases. Program sales growth reflected increased subscription video on demand (SVOD) distribution revenues in the current quarter. Operating results at ESPN were driven by growth in affiliate revenue, partially offset by lower advertising revenue. The increase in affiliate revenues was due to contractual rate increases and an increase in subscribers. The increase in subscribers was due to the SEC Network launched in August 2014, partially offset by a decline in subscribers at certain company networks. The impact of contractual rates and subscribers on affiliate revenue was partially offset by a decrease due to the recognition of $176 million of previously deferred revenue in the prior-year quarter related to annual programming commitments. As a result of changes in contractual provisions, ESPN did not recognize any deferred revenue in the current quarter. Lower advertising revenues reflected lower ratings and rates, partially offset by more units sold driven by NBA playoff games. Lower rates reflected the benefit of World Cup soccer in the prior-year quarter. ESPN programming and production costs were relatively flat in the quarter as the addition of the SEC Network and higher rights costs for NBA programming were essentially offset by the absence of rights costs for NASCAR and World Cup soccer.
Operating income at Broadcasting decreased 15 percent to $300 million for the quarter driven by higher programming costs, lower advertising revenue, and higher labor-related costs, partially offset by growth in affiliate fees and higher program sales revenue from SVOD distribution.
Parks and Resorts
Parks and Resorts revenues for the quarter increased 4 percent to $4.1 billion and segment-operating income increased 9 percent to $922 million. Operating income growth for the quarter was due to an increase at domestic operations, partially offset by a decrease at international operations. Higher operating income at domestic operations was primarily due to volume and guest spending growth, partially offset by higher costs. The increase in volumes was due to attendance growth at theme parks and higher occupied room nights at Walt Disney World Resort and the Aulani resort in Hawaii. Guest spending growth was due to higher food, beverage, and merchandise spending, increases in average ticket prices on the cruise line and Disneyland Resort and higher average hotel room rates. Cost increases were due to labor and other cost inflation, costs for the 60th anniversary celebration at Disneyland Resort, and higher pension and post-retirement medical costs, partially offset by lower marketing costs at Walt Disney World Resort. Lower operating income at the international operations was due to lower attendance and occupied room nights at Hong Kong Disneyland Resort, higher operating costs at Disneyland Paris and Hong Kong Disneyland Resort, and higher pre-opening expenses at Shanghai Disney Resort. These decreases were partially offset by higher average ticket prices, increased food, beverage, and merchandise spending and higher volumes at Disneyland Paris.
Studio Entertainment revenues for the quarter increased 13 percent to $2 billion and segment operating income increased 15 percent to $472 million. Higher operating income was due to an increase in theatrical distribution, growth at international television distribution, and a higher revenue share with the Consumer Products segment. These increases were partially offset by a decrease in home entertainment and higher film cost impairments. The increase in theatrical distribution reflected the strong performance of Marvel’s Avengers: Age of Ultron in the current quarter compared to Marvel’s Captain America: The Winter Soldier in the prior-year quarter. Theatrical results in the current quarter also benefited from the continuing performance of Cinderella, which was released in the second quarter of the current year. These increases were partially offset by the strong international performance of Frozen in the prior-year quarter and the results of Tomorrowland in the current quarter. The growth in international television distribution included sales of Star Wars titles, while the increased Consumer Products revenue share was primarily due to the performance of Frozen merchandise. The decrease at home entertainment reflected lower unit sales due to the performance of Frozen in the prior-year quarter compared to Big Hero 6 in the current quarter.
Consumer Products revenues for the quarter increased 6 percent to $954 million and segment operating income increased 27 percent to $348 million. Higher operating income was due to an increase in merchandise licensing revenues and lower third-party royalty expense. Merchandise Licensing revenue growth reflected the performance of merchandise based on Frozen, The Avengers, and Star Wars, partially offset by lower revenues from Spider-Man merchandise.
Interactive revenues for the quarter decreased by $58 million to $208 million and segment operating income decreased by $29 million to break-even. Lower operating income was primarily due to lower results from Disney Infinity and decreased sales of console game catalog titles, partially offset by the continued success of Tsum Tsum. The decrease from Disney Infinity was due to decreased unit sales and lower average net effective pricing.
LeapFrog Announces Q1 2016
LeapFrog Enterprises, Inc., announced financial results for the first quarter fiscal year 2016. The company’s fiscal year covers the 12-month period ending March 31, 2016.
Summary of financial results for the quarter ended June 30, 2015, compared to the quarter ended June 30, 2014:
• Consolidated net sales were $38.7 million, down 18 percent. U.S. segment net sales were down 9 percent, and international segment net sales were down 35 percent.
• Net loss per basic and diluted share was $0.39 compared to prior year net loss per basic and diluted share of $0.23.
• Cash and cash equivalents were $88.2 million as of June 30, 2015, compared to $199.2 million a year ago.
“We are in the very early stages of our transformation and our financial results are on plan as we reset our business,” said John Barbour, CEO. “Our cost savings initiatives are beginning to have an impact and we will continue to implement measures to run our business more effectively. With that said, I am encouraged by the progress we achieved in the quarter on the journey to turn around our company. A number of our carry-forward product lines are showing signs of positive momentum and many of our new product introductions for fall 2015 have started to ship.”
Financial Overview for the Q1 FY 2016 Ended June 30, 2015, Compared to the Q1 June 30, 2014:
First fiscal quarter net sales were $38.7 million, down 18 percent compared to $47 million last year, and included a 2 percent negative impact from changes in currency exchange rates. In the U.S. segment, net sales were $28 million, down 9 percent compared to $30.7 million last year. In the International segment, net sales were $10.6 million, down 35 percent compared to $16.3 million last year, and included a 7 percent negative impact from changes in currency exchange rates.
Operating expenses for the first fiscal quarter were $34.3 million, down 1 percent compared to $34.5 million last year. Prior year operating expenses included a $1.1 million reversal of prior period incentive compensation accruals that was not repeated in the current quarter. Loss from operations was $27.1 million, up $1.4 million or 5 percent from the prior period loss of $25.7 million due to sales declines.
Net loss for the first fiscal quarter was $27.3 million, or $0.39 per basic and diluted share, and included a tax benefit of $0.2 million. Prior year net loss of $16.4 million, or $0.23 per basic and diluted share, included a tax benefit of $9.7 million, or $0.14 per basic and diluted share.
Non-GAAP adjusted EBITDA for the quarter was negative $17.7 million compared to negative EBITDA of $16.2 million a year ago.
“While there is significant work ahead of us, we believe we have the right strategies in place to return the company to growth,” said Ray Arthur, CFO. “Our outlook for the current fiscal year 2016, ending March 31, 2016, is unchanged. We will continue to take steps to reduce operating expenses and manage our business responsibly as we position ourselves for a successful 2015 holiday season. Our longer-term plan is to achieve double-digit sales growth and positive cash flow in fiscal year 2017, which includes holiday 2016. We will remain focused on product innovation, execution, and operational efficiencies to help build a business with sustainable revenue and income growth. To accomplish these plans we will manage our cash balances, capital expenditures, and balance sheet prudently,” said Arthur.
ASTRA Offers Promotional Holiday Flyers
The American Specialty Toy Retailing Association (ASTRA) announced that it will provide participating ASTRA retailers with an updated, eight-page slim-style flyer that features the 18 award-winning 2015 Best Toys for Kids. Up to 500 copies are free for retailers who are ASTRA members. ASTRA says this format is convenient to mail and will stand out because it is smaller than most catalogs yet larger than a postcard.
Retailers have until September 18 to order whatever quantity they need to support their holiday marketing program. Information on prices for quantities over 500 and for adding custom prices or a store logo can be found on the ASTRA website. Flyers will be shipped on October 15.
LIMA’s Global Licensing Industry Survey Now Available for Download
The International Licensing Industry Merchandisers’ Association’s (LIMA) first annual Global Licensing Industry Survey is now available for digital download. Commissioned by LIMA and conducted by Brandar Consulting, LLC, the survey provides detailed breakdowns, quantifying worldwide royalty revenue, and corresponding retail sales by product category, property type, and geographical region. It also identifies the latest trends and offers forward-looking analysis of the $241.5 billion global licensing business.
According to the report, the market for products bearing the trademarked names and likenesses of cartoon characters, corporate logos and brands, major sports teams and more generated an estimated $13.4 billion in royalty revenues on $241.5 billion in retail sales in 2014.
Here are some other findings:
• U.S./Canada was by far the most dominant region with more than $144 billion in retail sales, nearly 60 percent of the worldwide total.
• Europe, with more than $57 billion in retail sales, accounted for just under one-fourth of the total global market while Asia, with its huge and growing population, accounted for nearly 10 percent of total retail sales.
• Due to the growth in e-commerce, the industry is becoming increasingly global and much of the new opportunities will come outside the saturated North American market, specifically in the Asia-Pacific Region. Due to the strength of the Chinese ecommerce company Alibaba, online sales accounted for 33 percent of retail sales of licensed product in China, the highest in the world by a large margin.
By category, the licensing industry continues to be dominated by five major sectors:
• Character & Entertainment
• Corporate Trademarks
Together, they represented 89 percent of all licensing revenues in 2014. Character & Entertainment, by far the most dominant category with more than $107 billion, accounted for 44 percent in retail sales. Corporate Trademark was $53 billion for 22 percent of sales. Fashion was $29 billion in estimated retail sales with 12 percent of the total while Sports ($26 billion, 11 percent), Publishing ($12 billion), Collegiate ($4.6 billion), Celebrity ($3.3 billion), and Music ($2.3 billion) rounded out the rest of the categories.
The full LIMA Annual Global Licensing Industry Survey is available free to LIMA members and priced at $750 for non-members. Click here for more information and to order a report.