Solid Earnings Reflect Walt Disney's (NYSE:DIS) Strength As A Business

The Walt Disney Company's (NYSE:DIS) earnings announcement last week was disappointing for investors, despite the decent profit numbers. We did some digging and actually think they are being unnecessarily pessimistic.

View our latest analysis for Walt Disney

The Impact Of Unusual Items On Profit

For anyone who wants to understand Walt Disney's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$3.1b due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Walt Disney doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Walt Disney's Profit Performance

Unusual items (expenses) detracted from Walt Disney's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Walt Disney's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Walt Disney at this point in time. In terms of investment risks, we've identified 1 warning sign with Walt Disney, and understanding this should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Walt Disney's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.