Walt Disney Co's Q1 Earnings Call: 4 Key Things Investors Should Know

By Markets Fool.com

Walt Disney reported its first-quarter fiscal 2016 results on Feb. 9. The diversified entertainment giant posted strong year-over-year revenue growth of 14%, while adjusted earnings per share jumped 28%. The results were driven by its phenomenally successfulStar Wars: The Force Awakens, which opened in domestic theaters in mid-December and quickly smashed box-office records.

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My purpose isn't to rehash the results (you can read my take on them here), but to supplement the earnings release data with color from Mickey and Company's conference call. [Transcript via Seeking Alpha.] Here are four key things you should know.

Image source: Disney.

ESPN and remaining nimble in a changing market
As he did last quarter, Disney CEO Bob Iger rattled off statistics illustrating the strength of sports cable network ESPN and outlined ways that the company could navigate the somewhat changing ways that people consume media.

The market has been jitteryabout the future profitability of Disney's cable-TV properties, particularly ESPN, since the company's third-quarter 2015 results were released last August. The concern is that the small decrease in subscribers that ESPN has been experiencing for a few years due to "cord-cutting" or "cord-slimming" -- people canceling or trimming their large cable bundles -- combined with the rising costs of securing sports rights will eventually hurt ESPN's profitability enough to negatively affect Disney's profitability.

Two of many Iger quotes:

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I actually believe that this notion that either the expanded basic bundle is experiencing its demise or that ESPN is cratering in any way from a sub perspective is just ridiculous. Sports is too popular.

[M]any of our brands, including Disney, Marvel, Star Wars and ESPN, are tailor-made for over-the-top direct-to-consumer app-based video products. So expect innovation and continued pursuit of new distribution opportunities.

In short, Iger seems to believe that the cord-cutting and cord-slimming issues are real, but overblown -- and I concur. His second key takeaway was that Disney has two primary ways to successfully navigate the changing market: getting ESPN included in skinny bundles and possibly offering it as a stand-alone product delivered directly to consumers.

Here's a more in-depth look at this topic, including more quotes from Iger from the conference call.

Greatly leveraging and expanding the Star Wars franchise
Disney is doing what it does best with its Star Wars jewel, which it acquired when it bought Lucasfilm in 2012: leveraging its assets across the entire company to drive long-term growth. From Iger's remarks:

Breaking records at the box office is only the beginning. Global retail sales for Star Wars merchandise in the first quarter exceeded $3 billion, more than triple the global retail for this franchise in Q1 of last year. Star Wars is also driving unprecedented growth for our mobile games ...Filming of Star Wars: Episode 8, the next chapter of the legendary saga, has just commenced and it will be in theaters December 2017. And production of Episode 9, a 2019 release, has also begun.

Disney is also planning the release of Rogue One: A Star Wars Story in December, to be followed by other stand-alone Star Wars stories, and is planning to break ground this year on new Star Wars theme lands at Disneyland and Walt Disney World.

Bench strength in the consumer products and interactive segment
The Force Awakens was the big driver for the consumer products and interactive segment in the quarter. Disney gets a royalty cut from all those movie-based toys, many made by Hasbro(NASDAQ: HAS),and other gift items that were flying off retailers' shelves over the holidays. However, it's important to remember that this segment has considerable power beyond Star Wars. Chief Operating Officer Tom Staggs outlined the segment's bench strength:

Star Wars was obviously a huge driver of consumer products and interactive results for the quarter, but it wasn't the only one. We're also very pleased with licensing growth this quarter from Marvel, led by Avengers. As we've discussed previously, we have 11 franchises that generated more than $1 billion each in annual retail sales for the last two fiscal years, making our consumer products business uniquely broad and deep. [Emphasis mine.]

A powerful pipeline from studio entertainment in addition to Star Wars films
As is the case with the consumer products and interactive segment, Disney's studio entertainment segment is so much more than Star Wars, which can be easy to forget amid all the current hype. Staggs reviewed Disney's film release schedule beyond Star Wars for the next few years:

We have two films from Disney Feature Animation this calendar year, starting with Disney Animation's Zootopia, an incredibly original, charming and very funny movie opening March 4. This Thanksgiving, we will release Moana, a comedy adventure with incredible music, very much in keeping with the tremendous legacy of Disney Animation.

As you know, a sequel of Frozen is in the works. In the meantime, Disney Animation is creating the first ever Frozen television special, which will air on ABC during the 2017 holiday season. And, following the tradition of Lion King, Beauty and the Beast, and Aladdin, we have a new Frozen stage musical slated for Broadway in 2018. [Disney is leveraging the heck out of the immensely popular Frozen. This should also help Hasbro's corporate coffers, as the license to produce dolls based on the film transitioned from Mattel to Hasbro in 2016.]

From Pixar, Disney is planning Finding Dory, the sequel to 2003's popular Finding Nemo, in June; Cars 3 in 2017 along with a Pixar original set in Latin America, Cocoa, that year; Toy Story 4 in 2018; Incredibles 2 in 2019. The Disney live-action studio projects include a new The Jungle Book, Alice Through the Looking Glass, and another Pirates of the Caribbean movie.

Disney's got a lot of powerful catalysts for growth in the pipeline, many of which seem to be getting overlooked recently given the market's hyper-focus on the cord-cutting and cord-slimming issue.

The article Walt Disney Co's Q1 Earnings Call: 4 Key Things Investors Should Know originally appeared on Fool.com.

Beth McKenna has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Hasbro and 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.