Mickey The Recession-Proof Mouse (DIS)

Disney (NYSE:DIS) remains well positioned in the current economic climate despite lower profits in the first quarter.

In its fiscal first quarter ending December 29, 2007, Disney posted net income of $1.25 billion (69 cents per share) versus $1.70 billion (79 cents per share) earned in the year ago period, a 26% decline. Even though the news sounds bad, its important to note that the company still beat Wall Street's consensus estimate of 52 cents a share. On the top line, revenue clocked in at $10.45 billion, up from the previous $9.58 billion, while the consensus revenue estimate was $10.04 billion.

Diversity is Key
Even though Disney's profits declined in the recent quarter, one thing investors need to remember is that the company is still solidly in the black. A profit of $1.25 billion for the quarter is nothing to sneeze at. With this in mind, I think the market is unlikely to drive the stock down in the following quarters for several reasons:

1. Disney is well-diversified, with multiple divisions including consumer products, television, radio, movies, theme parks and resorts.

2. Revenue in the company's media division (which includes ABC Family Channel, ESPN and other Disney channels), grew 10% during the quarter, a solid number by any measurement.

3. Even with elevated gasoline prices causing consumers to pinch pennies, the company's theme parks and resorts saw an 11% increase in revenue.

4. Operating income from the company's consumer products division bolted upwards a staggering 38% in the quarter. (To learn more, see Zooming In On Net Operating Income.)

All of the aforementioned shows us that even with difficult economic conditions, Disney is still on the right track for building shareholder wealth, and as an added bonus, the company is even benefiting from the declining dollar.

The Silver Dollar at Home
The declining dollar is hurting some industries, however the falling greenback has actually made the business environment even better for Disney. When the dollar declines against other currencies, it becomes more expensive to travel outside of the United States. If you've been to England recently and after the currency conversion, paid $12 to $18 for a regular hamburger, you know what I'm talking about. With this in mind, it's common sense that Americans would chose to vacation within our borders, especially with the economy forcing many to pinch pennies. American's aren't going to stop vacationing, they're just going to find a cheaper way to do it.

I see that as a big reason why the company's theme parks and resorts division witnessed such strong growth in the fiscal first quarter. And, given that the company's media division revenue and operating income also exceeded expectations, maybe many American's are simply just choosing to vacation on their couches. After all, Disney is a solid player in the video game market, too. And Disney is the major benefactor of the Hanna Montana craze.

What it comes down to is the simple fact that Disney has positioned itself well in today's media-friendly, armchair society. The coup de grâce from the earnings report was that, even with net profits down year-over-year, free cash flow increased an enviable 67%. (For related reading, see Analyze Cash Flow The Easy Way.)

The Bottom Line
Currently, we all need to be concerned about the economic downturn; however, companies like Disney that have worked hard to remain diversified and profitable in the current difficult business environment are likely to weather the storm, perhaps even expanding and growing. Even though Disney's fiscal first quarter profits sagged, the company is exceptionally poised to stay strong in the quarters to come.