Every financial update matters for Walt Disney (DIS 0.16%), but this week's earnings report is particularly important. The media giant announces results for its fiscal first quarter after Wednesday's market close, and there's a lot riding on Disney's performance.
With its annual shareholder meeting now a month away, CEO Bob Chapek is coming under fire from some retail investors upset about the state of the Disney's theme parks. They can't oust him from Disney's board on their own, but a weak financial update could rattle the cages of some of the institutional investors that have large blocks of shares to vote. Investors will also be watching Disney+ subscriber figures and whether Disney World was able to match rival Universal Orlando in reporting record profitability this quarter.
There are some good reasons to get excited about Disney's business looking forward, but the stock itself has proven mortal over the past year. Disney was the worst performer in the Dow 30 in 2021. It's trading lower again in 2022. Disney needs a strong quarterly update to resume its winning ways.
Image source: Disney.
Once bitten, mice shy
It's probably not a good sign that analysts have been whittling Disney's top- and bottom-line targets lower. Analysts were eyeing revenue of $18.9 billion for the fiscal first quarter ending in December just two weeks ago. We're now down to $18.36 billion, a mere 13% gain over the prior year's depressed results when Disneyland, its cruise ships, and most of its theatrical releases were on ice.
The trend isn't any kinder at the other end of the income statement. Wall Street's profit consensus calls for earnings of $0.61 a share. It was at $0.64 a share a month ago, and $0.62 a share two weeks ago. Adding insult to lower revision injury, Disney also fell short of expectations last time out. It's Wall Street, not Walt Street.
There are reasons for the forecasts being whittled lower. We've seen ad markets and box office receipts retreat in 2022 as the surging omicron variant is chasing spenders and moviegoers back home. Earlier this week Morgan Stanley analyst Benjamin Swinburne lowered his long-term direct-to-consumer margin expectations in light of competitor results.
Last month it was Michael Nathanson at MoffettNathanson slashing his free cash flow estimate for this fiscal year that started in October following Shanghai Disneyland adjustments and projections for higher working capital. Michael Morris at Guggenheim downgraded Disney, concerned about profit growth at its theme parks and that programming spend at the media behemoth would increase by as much as 32% this fiscal year.
When analysts are skittish entering into earnings season it's not a good sign. If Disney does buck the trend to post strong results it will likely be a combination of Disney+ subscriber additions surprising to the upside and recent moves at its domestic theme parks to prop up the segment's profitability and guest spending per capita.
Disney continues to be the media stock that sets the standard during earnings season. Investors have to be careful about the near-term concerns, but it's a quality name over the long haul. Your move, Mickey Mouse.
