Walt Disney Co. (DIS +2.03%) is slated to report its third-quarter results for fiscal 2017 after the market closes on Tuesday, Aug. 8.
The entertainment giant is facing a high comparables bar, so investors should keep expectations in check. The tough comparables primary stem from a trio of hit movies released in the year-ago quarter, which drove soaring growth in the studio entertainment segment.
Image source: Disney.
The headline numbers
Here are the year-ago quarter's results to use as benchmarks:
|
Metric |
Fiscal Q3 2016 Result |
|---|---|
|
Revenue |
$14.28 billion |
|
Segment operating income |
$4.46 billion |
|
Net income |
$2.60 billion |
|
Earnings per share (EPS) |
$1.59 |
|
Adjusted EPS |
$1.62 |
Data source: Disney.
Disney doesn't provide earnings guidance. Analysts expect it to post adjusted EPS of $1.56 on revenue of $14.43 billion, representing a 3.7% decline in EPS and a 1.1% increase in revenue over the year-ago period. While long-term investors shouldn't pay too much attention to Wall Street's near-term estimates, they can be helpful to know because they can help explain market reactions.
Beyond the headline numbers, here's what to watch in Tuesday's report.
Media networks: Cable results and ESPN streaming service plans
Investors should remain focused on results in Disney's cable business. The company has been losing subscribers to its lucrative ESPN cable offering as consumers ditch or slim down their large cable bundles, a phenomenon largely driven by the availability of video streaming services. Last quarter, cable's operating income declined 3%, driven by higher programming costs and a declining number of subscribers.
Disney has been taking steps to position itself to profit in the changing consumer TV-viewing environment. One big leap was acquiring a 33% stake in video streaming leader BAMTech last fall. Investors could hear some details from Disney's management on the earnings call about the planned 2017 launch of an ESPN-branded multisport subscription streaming service.
Parks and resorts: Expect another Shanghai Disney bump
Parks and resorts, Disney's second largest segment by revenue, can usually be counted on to deliver solid results, driven by strength in domestic parks. More recently, results have also been getting a boost from the opening of Shanghai Disney in mid-June of last year. Last quarter, for instance, revenue and operating income grew 9.4% and 20.2%, respectively. Investors can probably expect another good quarter.
Studio entertainment: Expect another tough comparable
This will be the third consecutive quarter in which Disney faces a tough comparable in its movie business, which had a phenomenon year in fiscal 2016. In the year-ago quarter, studio entertainment's year-over-year revenue and operating income soared 40% and 62%, respectively, driven by three blockbusters released in the quarter -- The Jungle Book, Captain America: Civil War, and Finding Dory -- plus some theatrical carryover from Zootopia released in the prior quarter.
Disney's slate of movies released in the quarter to be reported was overall weaker than the year-ago period's line-up, which will be reflected in the segment's results. In the quarter, Disney released Marvel's Guardians of the Galaxy Vol. 2, Pirates of the Caribbean: Dead Men Tell No Tales, and Pixar's Cars 3. The first two films are performing well -- they've taken in theatrical receipts of $860.9 million and $776.1 million, respectively, and are the No. 3 and No. 6 top-grossing movies in 2017, as of Aug. 4. Cars 3 has grossed just $269.8 million.
Realistic expectations is the name of the game going into earnings. Investors should keep in mind that CEO Bob Iger said going into fiscal 2017 that this year would be a slower-growth year, but that Disney's more recent strong growth dynamics will continue again in fiscal 2018.
