Consumers are becoming more and more socially conscious and want the goods and services they use to measure up. In truth, it doesn't take much. A simple action that costs a company very little or nothing at all can make a real difference in the mind of the consumer.
Often, the added expenses a company incurs from paying workers a little more, monitoring resource sourcing, or going the extra ethical mile are small downsides when compared to the huge potential upside. And where there's company upside, there's investor upside.
Recently, Walt Disney (NYS: DIS) has made significant strides in this area. Let's dive deep into this titan of American entertainment, evaluate its socially conscious policies and practices, and take a hard look at the numbers. We'll analyze the company in terms of its performance as a socially conscious enterprise, as a business, and as an investment.
Mickey Mouse wants America to get fit
Disney will start applying its own set of strict nutritional standards to any food advertising it does on all of its family oriented, Disney-owned media outlets by 2015. In addition, the company will be taking steps to make its theme-park food more healthy. Why the sudden concern for the country's health?
It's actually not so sudden. In 2006, Disney established its own internal nutrition guidelines, but has only recently pulled the advertising plan itself together. It was the first major media company to establish such guidelines. For the record, Disney can't implement the plan sooner because it has advertising contracts that reach out as far as 2015.
In short, Disney's groundbreaking guidelines:
Meet federal nutrition standards.
Promote fruit and vegetable consumption.
Call for limiting caloric intake.
Call for limiting fat, sugar, and salt intake.
But again, why is Disney on this tack at all? According to CEO Robert Iger: "Companies in a position to help with solutions to childhood obesity should do just that. This is not altruistic. This is about smart business." In the end, it doesn't really matter why Disney is doing what it's doing, so long as it's doing it. Way to go, Mickey.
Mainly healthy food, mainly healthy numbers
Now, let's look at a few basic metrics and see how Disney measures up as a business and an investment:
Revenue growth: Year-over-year revenue growth for the House of the Mouse was 6%, not staggering but healthy for a company as old as it is, and better than its rivals. News Corp. (NAS: NWS) only grew its revenue by 2% YOY, Time Warner (NYS: TWX) by only 4% YOY, and Viacom (NAS: VIA) by only 2% YOY.
Earnings growth: YOY earnings growth for Disney was huge, 21.3%. News Corp. and Viacom also had little to complain about, with YOY earnings growth of 46.6% and 55.6%, respectively. Conversely, Time Warner, at -10.7%, had a lot to complain about.
Cash-to-debt ratio: It's always good to see more cash than debt on the balance sheet, ideally at least 1.5 times more.
With $1.14 billion in cash and $7.78 billion in debt, Disney's C/D is a disappointing 0.14.
With $10.69 billion in cash and $15.46 billion in debt, News Corp.'s C/D is a slightly better 0.69.
The $2.88 billion in cash and $19.52 billion in debt give Time Warner the same disappointing C/D as Disney, 0.14.
Viacom's C/D comes in at 0.14 as well, with $1.14 billion in cash and $7.78 billion in debt.
Price-to-earnings ratio: At 17.41 and 17.14, respectively, P/Es for both Disney and News Corp. show the companies are currently a good value. Time Warner, at 14.28, is slightly cheaper, but not drastically so. Viacom also is right in the average P/E range for American companies, at 15.18.
Making money and a difference
Disney is more than solid on all of the metrics we looked at, except for C/D, which every company here flunks. I'm afraid that in this era of cheap money, companies are feeling freer than usual to load up on debt. But while debt payments will be low from a relative perspective, from an absolute perspective it's still a big pile of debt that will have to be dealt with.
Given that, Disney is doing well and will not suffer from its foray into social responsibility. Just the opposite. Companies that understand the connection between profit and social responsibility are companies that are in touch with the times and are some of this planet's most successful.
Apple has famously gotten the connection of late, joining the Fair Labor Association in January and giving shareholders majority vote for directors. And social responsibility has long been a core asset of Starbucks, a company that seems to just be hitting its prime after 40 years in business.
Are any companies perfect in this regard? No, but, to paraphrase Voltaire, it's important to never let the quest for the perfect drive out the good. If you're looking for similarly forward-thinking, profitable investments like Disney, read about the stock The Motley Fool is calling its top stock pick for 2012 in our special free report, aptly titled "The Motley Fool's Top Stock for 2012." Get it while the stock is still hot by clicking here now.
At the time thisarticle was published Fool contributor John Grgurich quotes Voltaire whenever he gets the chance, though his German Shepherd prefers Nietzsche. Neither owns shares of any of the companies mentioned in this column. Follow John's dispatches from the front lines of capitalism on Twitter @TMFGrgurich.The Motley Fool owns shares of Walt Disney. Motley Fool newsletter services have recommended buying 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 positively scintillating disclosure policy.
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