Walt Disney Co Will Have Plenty to Prove on Feb. 3

By Markets Fool.com

Continue Reading Below

Source: Rick Munarriz

Walt Disney Co. is in a pretty good place these days. The economy is improving, making a trip out to one of its theme parks feasible for more people. The plunge in gasoline prices is making the trek out there even cheaper.

Disney theme parks make up just one of several divisions at the family entertainment giant, and there is plenty to like once you dig deeper into its portfolio of content and broadcasting properties. We'll get a great glimpse into how the House of Mouse is holding up on Tuesday afternoon when it reports quarterly results.

Despite all of the tailwinds, analysts are holding out for modest growth in the report. They see revenue inching less than 5% higher to $12.87 billion for the fiscal first quarter, with earnings per share climbing a mere 3% to $1.07.

That seems low at first blush. The National Retail Federation's annual survey of toy demand late last year found Disney's Frozen franchise knocking Barbie off the throne as the most desirable plaything for girls during the holiday shopping season. ESPN is as popular as ever. Guardians of the Galaxy was the top domestic draw in 2014. Low fuel costs should also translate into increased profits for Disney's growing fleet of cruise ships.

Continue Reading Below

This may all be true, but performance is always relative. The report on Tuesday will be stacked against blowout results a year earlier. The prior holiday quarter saw all five of its subsidiaries come through with double-digit gains in operating income.

Disney's studio division experienced a 23% spike in revenue during last fiscal year's freshman quarter, fueled by the theatrical success of Frozen and Marvel's Thor: The Dark World. Disney's Big Hero 6 was the only notable release this time around, and it sold a little more than half as many tickets as Frozen. This will always be a volatile division on a quarterly basis. Just three months ago we were cheering the summertime success ofGuardians of the GalaxyandMaleficentresulting in an 18% increase in revenue and operating income more than doubling.

The media juggernaut is also coming up against some rough comparisons at its Interactive division. Revenue there soared 38% over the prior year's holiday quarter with the release of the Skylanders-esque Disney Infinity earlier that summer.

In other words, the market shouldn't be upset if Disney posts what may only be pedestrian growth on Tuesday. The entertainment business will be lumpy, and the market needs longer measuring sticks to gauge performance. The comparisons will get slightly more favorable once we get past this period. Wall Street is eyeing revenue and earnings-per-share growth for all of fiscal year 2015 of 6% and 8%, respectively.

That will leave us at the doorstep of fiscal year 2016 which kicks off with the highly anticipatedStar Wars: The Force Awakensin December.

This doesn't mean that Disney investors will forgive, forget, and tap the snooze bar if Tuesday delivers a ho-hum performance. Anything short of record attendance at its domestic theme parks will be a disappointment. They will also want to see sequential improvement at ESPN. Revenue has never been a problem at the leading sports network, but escalating programming costs ate into the segment's operating profit during fiscal 2014's fourth quarter. Disney's international channels will also be put under the microscope after weighing down the division's operating profit the last time out.

We should still be looking at a strong quarter under CEO Bob Iger. With the shares hitting yet another all-time high earlier this year, investors won't settle for anything less.

The article Walt Disney Co Will Have Plenty to Prove on Feb. 3 originally appeared on Fool.com.

Rick Munarriz owns shares of Walt Disney. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.