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3 Things to Watch When Disney Reports Fiscal Q3 Earnings

By Danny Vena – Aug 5, 2019 at 5:05PM

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There's a lot going on at the House of Mouse. Here's a preview.

The Walt Disney Company (DIS -0.04%) is enjoying something of a renaissance this year. A number of box office smashes, the opening of a highly anticipated attraction, and details about the company's long-awaited streaming service have piqued the interest of investors and energized the stock. After almost three years of being stuck in neutral, the stock has gained nearly 30% so far this year.

With investors having bid the stock up to such a level, Disney has a lot to prove. Investors will be scrutinizing its performance for hints of what the future holds when the company reports the financial results of its fiscal third quarter after the market closes on Tuesday, Aug. 6. Here are several areas shareholders will be watching closely.

Actor Chris Evans cries in a scene from Avengers: Endgame.

Avengers: Endgame's box office was nothing to cry about. Image source: Disney.

Heroic box office

To say that Marvel's Avengers: Endgame was a success last quarter would be the very definition of an understatement. The final chapter of the Avengers saga began smashing records from the very beginning, and in mid-July, it broke the all-time box office benchmark, displacing James Cameron's Avatar, which had held the spot for nearly a decade.

And that was not Disney's only box office success last quarter, which is why investors will be parsing the studio entertainment segment results so carefully. In addition to Endgame, Aladdin, Toy Story 4, and Captain Marvel all contributed to the recent quarter -- which could be Disney's biggest quarter ever, its acquisition of Fox notwithstanding. The company just broke the all-time record for total box office generated by any studio in a year -- a record Disney itself set back in 2016.

Did Star Wars: Galaxy's Edge crash and burn?

There was a lot of buzz around the opening of the newest Star Wars attraction, Galaxy's Edge, which debuted on May 31 at Disneyland. For the first three weeks, entrance to the area was tightly controlled, with reservations required. Even then, the sole ride and many exhibits and attractions were inundated by crowds.

All that glitters is not gold, however, and more recent reports have described Disneyland as a ghost town, suggesting that vacationers might have put off trips to the Happiest Place on Earth for fear of long lines or, worse still, that riders weren't all that impressed by Millennium Falcon: Smuggler's Run -- the one Star Wars-themed ride. In either case, investors will be looking for any weakness in the parks, experiences, and products segment. Theme park attendance has been a consistent performer for the company; last quarter, it generated 41% of the company's revenue and 39% of its operating income.

A Fox in the mouse house

Disney acquired television and movie studios from Fox in late March, so this will be the first full quarter that includes the impact of the acquisition. In anticipation of this, Disney reorganized its business segments, which took effect early this year. Last quarter, the company booked restructuring and impairment charges of $662 million related to the acquisition.

Analysts' consensus estimates are calling for revenue of $21.48 billion, up 41% year over year, and earnings per share of $1.75, a decline of about 6%, as the company works to integrate the recent addition of Fox.

Investors will be watching closely to ensure the company is making sufficient progress on the integration.

Danny Vena owns shares of Walt Disney and has the following options: long January 2021 $85 calls on Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has the following options: long January 2021 $60 calls on Walt Disney and short October 2019 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.

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