Expect Disney to Keep Trimming the Fat

by Jonathan Berr | April 5, 2013 1:01 pm

Walt Disney (NYSE:DIS[1]) CEO Bob Iger is reportedly about to take a much-needed axe to the media conglomerate’s bloated payroll[2], which has swelled in recent years following its $8 billion acquisition spree since 2009 that has added Marvel Entertainment and LucasFilms.

Reports indicate that the layoffs are going to hit the movie studio — which has been hurt by box-office bombs such as Mars Needs Moms and John Carter — along with home entertainment, production and marketing. The cuts are a follow-up to Iger’s 2012 order for an internal audit to identify areas of redundancy, according to Variety.

“While Disney is coming off one of its best years — profits were up 18% to $5.7 billion in fiscal 2012, which ended Sept. 29 — Iger still believes there are more ways to run Disney more efficiently,” Variety reports.

Even a cursory review of the company’s financial data shows that he’s right.

According to data from Reuters, the Burbank, Calif.-based company earns $258,072 in revenue for each of its approximately 166,000 employees, and $36,687 on a net income basis. Comcast (NASDAQ:CMCSA[3]), which employs about 129,000, does much better, generating $485,039 in sales and $60,969 in profit — and even then, it has reportedly been slashing costs at its NBCUniversal media and theme park business for weeks.

Smaller media companies also perform much better on this metric than Disney. Viacom (NASDAQ:VIAB[4]) earns $1.34 million in revenue and $229,352 in profit from each of its approximately 9,800 employees. Time Warner (NYSE:TWX[5]) gets $844,971 in revenue and $88,706 in net income from its 31,000 workers, and News Corp (NASDAQ:NWSA[6]) generates $715,271 in revenue and $88,500 in net income from its 48,000 full-time employees.

Keep in mind that these numbers are skewed given that Disney has been bulking up in recent years, while rivals such as Time Warner have slimmed down — in TWX’s case, by getting rid of businesses it no longer sees as core, such as music and cable television. That’s why Disney’s decision to shutter the game development business at LucasFilms[7] needs to be seen in a broader context.

Time Warner will slim down further when it finally jettisons its moribund Time Inc. magazine business[8]. And although CEO Rupert Murdoch had to be cajoled into doing it, News Corp plans to separate the publishing division that’s close to the Australia-born tycoon’s heart from its more lucrative broadcast and cable television businesses. Given the company’s recent acquisition history, Disney probably won’t follow its rivals down this path, which means that cost-cutting will become the new mantra at the Mouse House.

Shares of Disney have risen 32% over the past year, which is nothing to complain about … except that its peers, such as Time Warner (57%) and News Corp (53%), have done much better. Even Comcast — whose cable business Wall Street seems to think is always threatened with extinction — did slightly better, gaining 39%.

Disney trades at a price-to-earnings multiple of 18.63, a five-year high, so there is no big sense of urgency to buy the stock now. However, the company should be kept on investors’ radar screens in the event of a pullback.

Disney’s Theme Parks division should do fine as long as the economic recovery doesn’t go too far off the rails. The same holds true for its cable channels such as ESPN. The company’s Oz The Great And Powerful has proven impervious to critical barbs and has done well at the box office, generating more than $198 million in sales. Iron Man 3, the latest chapter in the franchise, and The Lone Ranger, which stars Johnny Depp, should resonate with audiences, too.

Even when things don’t go well, Disney always has a knack for coming back when investors don’t expect it.

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities. Follow him on Twitter @jdberr.

  1. DIS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DIS
  2. take a much-needed axe to the media conglomerate’s bloated payroll: https://investorplace.com/2013/04/disney-layoffs-are-on-the-way/
  3. CMCSA: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMCSA
  4. VIAB: http://studio-5.financialcontent.com/investplace/quote?Symbol=VIAB
  5. TWX: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWX
  6. NWSA: http://studio-5.financialcontent.com/investplace/quote?Symbol=NWSA
  7. shutter the game development business at LucasFilms: https://investorplace.com/2013/04/disney-stops-making-star-wars-games/
  8. finally jettisons its moribund Time Inc. magazine business: https://investorplace.com/2013/03/tune-into-an-increasingly-focused-time-warner/

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