Walt Disney Co. (DIS +1.35%) is slated to report its first-quarter results for fiscal 2018 after the market closes on Tuesday, Feb. 6.
The good news for investors is that, if CEO Bob Iger is to be believed, the entertainment giant is poised to get back some growth mojo this fiscal year. Last year, top- and bottom-line results both dipped 1% from the prior year, marking the first time in seven years that Disney's annual revenue and profits declined from the previous year. These results shouldn't have taken investors by surprise, as Iger communicated early on that the year would see a pause in the company's growth dynamics.
The first culprit behind last year's sluggish results was an ultra-tough year-over-year comparable in the company's movie business, which churned out blockbuster after blockbuster in fiscal 2016. The bigger factor, however, was the much ballyhooed challenges at ESPN centered on the industrywide trend of consumers who are ditching their cable in favor of video-streaming services.
If Disney's moves to rev up its growth engine are successful, its stock's performance should also improve. Shares have returned 5.5% over the one-year period through Jan. 26, and while that's an improvement from being in the red, as they were not long ago, they still lag the S&P 500's 27.5% return for this period. The stock remains, however, a big winner over the long term.
Image source: Disney.
The headline numbers
Here are the year-ago period's results to use as benchmarks:
|
Metric |
Q1 2017 Result |
|---|---|
|
Revenue |
$14.78 billion |
|
Segment operating income |
$3.96 billion |
|
Net income |
$2.48 billion |
|
Adjusted earnings per share (EPS) |
$1.55 |
Data source: Disney.
Disney doesn't provide earnings guidance. Analysts are expecting The House of Mouse will earn $1.61 per share on revenue of $15.46 billion, representing year-over-year growth of 3.9% and 4.6%, respectively. Long-term investors shouldn't pay too much attention to analysts' estimates since Wall Street is focused on the short term. However, these expectations can be helpful to know as they often help explain market reactions.
Beyond the headline numbers, here's what to watch in the report.
Media networks
Media networks -- Disney's largest segment -- had a rough fiscal 2017, driven by the massive shift in the TV-viewing market away from cable and toward video-streaming options. While year-over-year revenue just edged down 1%, operating income dropped 11%, driven by declines in the cable business. Broadcasting held its own.
Investors need to have some patience with this segment, as results aren't likely to turn around right away. Disney, however, has made aggressive moves to set itself up to thrive in the changing consumer media environment. The company plans to launch an ESPN over-the-top service this spring, followed by a more broad Netflix-like subscription video-streaming service in 2019. Investors can probably expect more news on the conference call about these upcoming offerings.
Disney's position in the entertainment space will be further bolstered if it gets the green light from regulators on its pending acquisition of Twenty-First Century Fox's entertainment assets. In addition to strengthening Disney's already powerful studio business, this megadeal will bring the company valuable content that it can use in its streaming services. Moreover, it will increase Disney's ownership of Hulu from 30% to 60%.
Star Wars: The Last Jedi. Image source: Disney.
Studio entertainment
In fiscal 2017, Disney's movie-making business experienced year-over-year revenue and operating income declines of 11% and 13%, respectively. Results should bounce back this year, as last year's results reflect studio's record-breaking fiscal 2016. That fiscal year led off with the phenomenally successful Star Wars: The Force Awakens -- the first film from the epic franchise released in a decade, and the first released under Disney ownership.
In the first quarter of fiscal 2018, Disney released three movies: Marvel's Thor Ragnarok and Pixar's Coco in November, followed by Star Wars: The Last Jedi in December. This lineup -- ranked Nos. 8, 13, and 1, respectively, for global theatrical receipts for films released in 2017 -- should be good enough for the studio business to give a decent kickoff to the new fiscal year. The comparable for the year-ago quarter is fairly challenging, as that quarter contained the releases of Rogue One: A Star Wars Story, Disney Animation's Moana, and Marvel's Dr. Strange. Nonetheless, the total box-office take for the three movies that hit the silver screen in the quarter to be reported is $1.12 billion, versus $1.01 billion for the three released in the first quarter of fiscal 2017. That said, home video sales can make a notable difference in quarterly results.
Parks and resorts
Disney's parks business -- its second largest segment in terms of both revenue and operating income -- pulled the load for the company last year. It was the only segment that grew revenue and operating income, which rose 8% and 14% year over year, respectively. Growth was driven by solid performance in domestic parks, where guests keep increasing their spending, and exceptional performance at Disney Shanghai, which opened in June 2016.
There's every reason to believe the good times will continue to roll in parks: Domestic guests seem to shrug off admissions increases and continue to up their spending on food and beverages, the Chinese can't get enough of their new massive Disney park, and the company continues to add new attractions, with Toy Story Land slated to open at Disney's Hollywood Studios in Florida in the summer.
Looking forward
Let's give the final word to Iger, whose statement in the company's earnings release last quarter says it all:
No other entertainment company is better equipped to navigate the ever-evolving media landscape, thanks to our unparalleled collection of brands and franchises and our ability to leverage IP [intellectual property] across our entire company.
