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Disney (DIS) Tops Q1 Earnings, Sales Lag; ESPN Woes Linger
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Media behemoth – The Walt Disney Company (DIS - Free Report) – reported better-than-expected earnings in first-quarter fiscal 2017 after missing the same in the preceding quarter. However, the company’s revenues missed the Zacks Consensus Estimate for the second straight quarter.
The company’s earnings in the reported quarter came in at $1.55 per share, beating the Zacks Consensus Estimate of $1.48 but declined 4.5% on account of tough year-over-year comparison. The prior-year period gained from the remarkable performance of the Studio and Consumer Products businesses powered by Star Wars, and to some extent, Frozen.
However, revenues declined 3% year over year to $14,784 million and missed the Zacks Consensus Estimate of $15,263 million. Decline in revenues were mostly due to dismal performance of Media Networks and Consumer Products & Interactive Media.
The company’s total operating income came in at $3,956 million during the quarter, down 7% year over year. The downside was primarily due to 4% and 17% fall in operating income from Media Networks and Studio Entertainment, respectively.
The Media Networks segment’s revenues dipped 2% to $6,322 million, primarily due to a 2% decline in Cable Networks revenues to $4,428 million. However, Broadcasting came in at $1,805 million, flat year over year.
The segment’s operating income came in at $1,362 million, down 4% year over year. Cable Networks saw 11% drop in operating income to $864 million, while the Broadcasting segment reported a 28% jump in operating income to $379 million. Sharp decline in Cable Networks operating income can primarily be attributed to dismal performance of ESPN. Weaker results at ESPN were mostly due to fall in advertising and increase in programming cost in comparison to the preceding year. ESPN advertising revenues declined 7% in the reported quarter. However, total affiliate revenue increase by 4% in the reported quarter.
Parks and Resorts revenues came in at $4,555 million, up 6% from the year-ago period. The segment’s operating income climbed 13% to $1,110 million, backed by robust performance both internationally and domestically. Growth at domestic operations was driven by increase in guest spending, partially offset by 5% decline in attendance. At domestic parks, per capital spending increased 7%, while per room spending at domestic hotels was up 3%.
On the other hand, the performance of international operations which were hampered by lower footfall and dismal performance of Disneyland Paris and Hong Kong Disneyland Resort in the past came as a surprise. Opening of Shanghai Disney Resort in third-quarter fiscal 2016 and enhanced results at both Disneyland Paris as well as Hong Kong Disneyland drove the growth at international parks.
The Studio segment generated revenues of $2,250 million, down 7% year over year. Further, operating income dropped 17% to $842 million. Decrease in operating income was mainly due to decline in home entertainment and theatrical distribution and also owing to lesser revenue share from the Consumer Products & Interactive Media segment, somewhat neutralizing the growth registered at TV/SVOD distribution. Dismal theatrical distribution results were chiefly due to comparison with Rogue One: A Star Wars Story in the reported quarter to the extraordinary performance of Star Wars: The Force Awakens in first-quarter fiscal 2016.
Disney’s Rogue One: A Star Wars Story crossed $1 billion at the box office. Moreover, the company’s animation's latest musical masterpiece, Moana, has garnered $555 million at the box office.
The company has impressive lineup of movies in fiscal 2018. The company is expected to release four new Marvel movies, two Star Wars releases, which includes Episode VIII and three animated films from Pixar and Disney Animation. Moreover, the success of its movies will mean great business for its Consumer Products division as demand for the merchandise associated with successful movies usually skyrocket.
Consumer Products & Interactive Media division saw a 23% decrease in revenues to $1,476 million. The units’ operating income slumped 25% to $642 million. The fall in operating income was mainly stemmed from decline at the company’s merchandise licensing and gamer business.
Is ESPN Woes Over?
Over the past few quarters Disney’s ESPN has been a hot topic in the media industry and investors are closely monitoring the performance of ESPN. Identical to performances in the past few quarters, ESPN has disappointed investors in the first quarter again. Falling subscriber base and higher programming costs at ESPN dragged down the company’s results this quarter too. ESPN not only lost subscribers in the reported quarter but also witnessed decline in average viewership and advertising rates mostly due to lesser College Football Playoff games in the quarter. Fresh NBA agreement and increase in contractual rate for NFL programming drove the overall programming cost higher for ESPN. Ad revenues of ESPN declined 7% during the quarter. Most of the media companies are failing to cope with "cord cutting" as consumers are unwilling to pay for large bundles of channels.
Dismal performance of ESPN this quarter, once again has raised the question of its recovery. Chief Executive Robert Iger’s optimism to be bullish about the ESPN’s future has come under a lot of pressure as the Pay TV landscape continues to alter owing to migration of subscribers to online TV. In an effort to attract online viewers, the company had earlier inked a deal with video streaming, data analytics as well as commerce management company BAMTech. Addititionally, it has the option to acquire majority of the stake in BAMTech, in future. Disney intends to come up with a fresh “direct-to-consumer ESPN-branded, multi-sports subscription streaming service” in 2017. Further, the company is focused on launching ESPN on all new multi-channel services, which includes Sling TV, DIRECTV NOW, Hulu and PlayStation Vue.
Iger said that ESPN has sealed a number of deals with new platform owners, mostly over-the-top. These deals have started to give positive results and are also increasing the number of subscribers. Moreover, the company has inked a deal with Hulu and another entity, and also is in discussion with others.
Other Financial Details
Disney, which shares space with Twenty-First Century Fox, Inc. (FOXA - Free Report) generated free cash flow of $220 million during the quarter, down 79% year over year. The company ended the quarter with cash and cash equivalents of $3,736 million, borrowings of $14,792 million and shareholder’s equity of $43,210 million, excluding non-controlling interest of $3,967 million.
During the quarter, the company bought back nearly 15 million shares for $1.5 billion.
Stock Performance
Due to mixed results not much movement was observed in the stock in after hours-trading session. However, of late, media stocks have done considerably well buoyed by video-on-demand programming options, skinny bundles and other revenue generating models. The reflection of the same is quite visible from the overall bullishness seen in the industry.
The Zacks categorized Media Conglomerates industry has advanced 12.5% in the past three months, comfortably outperforming both the S&P 500 and the Dow Jones Industrial Average that gained 7.2% and 9.6%, respectively. In fact, it also outdid the broader Consumer Discretionary sector that increased 8%.
Like other media behemoths, Disney has contributed significantly in the bull run of the industry. Shares of this bellwether have surged 13.4% in the abovementioned time frame, notably outclassing both the industry as well as the sector.
Zacks Rank & Key Picks
Currently, Disney carries a Zacks Rank #3 (Hold). Better-ranked stocks include Gray Television, Inc. (GTN - Free Report) sporting a Zacks Rank #1 (Strong Buy) and Scripps Networks Interactive, Inc. carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Gray Television shares have increased 62% in the past six months.
Scripps Networks Interactive has a long-term earnings growth rate of 10.8% and its shares have increased more than 15% in the past three months.
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Disney (DIS) Tops Q1 Earnings, Sales Lag; ESPN Woes Linger
Media behemoth – The Walt Disney Company (DIS - Free Report) – reported better-than-expected earnings in first-quarter fiscal 2017 after missing the same in the preceding quarter. However, the company’s revenues missed the Zacks Consensus Estimate for the second straight quarter.
The company’s earnings in the reported quarter came in at $1.55 per share, beating the Zacks Consensus Estimate of $1.48 but declined 4.5% on account of tough year-over-year comparison. The prior-year period gained from the remarkable performance of the Studio and Consumer Products businesses powered by Star Wars, and to some extent, Frozen.
However, revenues declined 3% year over year to $14,784 million and missed the Zacks Consensus Estimate of $15,263 million. Decline in revenues were mostly due to dismal performance of Media Networks and Consumer Products & Interactive Media.
The company’s total operating income came in at $3,956 million during the quarter, down 7% year over year. The downside was primarily due to 4% and 17% fall in operating income from Media Networks and Studio Entertainment, respectively.
Segment Details
The Media Networks segment’s revenues dipped 2% to $6,322 million, primarily due to a 2% decline in Cable Networks revenues to $4,428 million. However, Broadcasting came in at $1,805 million, flat year over year.
The segment’s operating income came in at $1,362 million, down 4% year over year. Cable Networks saw 11% drop in operating income to $864 million, while the Broadcasting segment reported a 28% jump in operating income to $379 million. Sharp decline in Cable Networks operating income can primarily be attributed to dismal performance of ESPN. Weaker results at ESPN were mostly due to fall in advertising and increase in programming cost in comparison to the preceding year. ESPN advertising revenues declined 7% in the reported quarter. However, total affiliate revenue increase by 4% in the reported quarter.
Parks and Resorts revenues came in at $4,555 million, up 6% from the year-ago period. The segment’s operating income climbed 13% to $1,110 million, backed by robust performance both internationally and domestically. Growth at domestic operations was driven by increase in guest spending, partially offset by 5% decline in attendance. At domestic parks, per capital spending increased 7%, while per room spending at domestic hotels was up 3%.
On the other hand, the performance of international operations which were hampered by lower footfall and dismal performance of Disneyland Paris and Hong Kong Disneyland Resort in the past came as a surprise. Opening of Shanghai Disney Resort in third-quarter fiscal 2016 and enhanced results at both Disneyland Paris as well as Hong Kong Disneyland drove the growth at international parks.
The Studio segment generated revenues of $2,250 million, down 7% year over year. Further, operating income dropped 17% to $842 million. Decrease in operating income was mainly due to decline in home entertainment and theatrical distribution and also owing to lesser revenue share from the Consumer Products & Interactive Media segment, somewhat neutralizing the growth registered at TV/SVOD distribution. Dismal theatrical distribution results were chiefly due to comparison with Rogue One: A Star Wars Story in the reported quarter to the extraordinary performance of Star Wars: The Force Awakens in first-quarter fiscal 2016.
Disney’s Rogue One: A Star Wars Story crossed $1 billion at the box office. Moreover, the company’s animation's latest musical masterpiece, Moana, has garnered $555 million at the box office.
The company has impressive lineup of movies in fiscal 2018. The company is expected to release four new Marvel movies, two Star Wars releases, which includes Episode VIII and three animated films from Pixar and Disney Animation. Moreover, the success of its movies will mean great business for its Consumer Products division as demand for the merchandise associated with successful movies usually skyrocket.
Consumer Products & Interactive Media division saw a 23% decrease in revenues to $1,476 million. The units’ operating income slumped 25% to $642 million. The fall in operating income was mainly stemmed from decline at the company’s merchandise licensing and gamer business.
Is ESPN Woes Over?
Over the past few quarters Disney’s ESPN has been a hot topic in the media industry and investors are closely monitoring the performance of ESPN. Identical to performances in the past few quarters, ESPN has disappointed investors in the first quarter again. Falling subscriber base and higher programming costs at ESPN dragged down the company’s results this quarter too. ESPN not only lost subscribers in the reported quarter but also witnessed decline in average viewership and advertising rates mostly due to lesser College Football Playoff games in the quarter. Fresh NBA agreement and increase in contractual rate for NFL programming drove the overall programming cost higher for ESPN. Ad revenues of ESPN declined 7% during the quarter. Most of the media companies are failing to cope with "cord cutting" as consumers are unwilling to pay for large bundles of channels.
Dismal performance of ESPN this quarter, once again has raised the question of its recovery. Chief Executive Robert Iger’s optimism to be bullish about the ESPN’s future has come under a lot of pressure as the Pay TV landscape continues to alter owing to migration of subscribers to online TV. In an effort to attract online viewers, the company had earlier inked a deal with video streaming, data analytics as well as commerce management company BAMTech. Addititionally, it has the option to acquire majority of the stake in BAMTech, in future. Disney intends to come up with a fresh “direct-to-consumer ESPN-branded, multi-sports subscription streaming service” in 2017. Further, the company is focused on launching ESPN on all new multi-channel services, which includes Sling TV, DIRECTV NOW, Hulu and PlayStation Vue.
Iger said that ESPN has sealed a number of deals with new platform owners, mostly over-the-top. These deals have started to give positive results and are also increasing the number of subscribers. Moreover, the company has inked a deal with Hulu and another entity, and also is in discussion with others.
Other Financial Details
Disney, which shares space with Twenty-First Century Fox, Inc. (FOXA - Free Report) generated free cash flow of $220 million during the quarter, down 79% year over year. The company ended the quarter with cash and cash equivalents of $3,736 million, borrowings of $14,792 million and shareholder’s equity of $43,210 million, excluding non-controlling interest of $3,967 million.
During the quarter, the company bought back nearly 15 million shares for $1.5 billion.
Stock Performance
Due to mixed results not much movement was observed in the stock in after hours-trading session. However, of late, media stocks have done considerably well buoyed by video-on-demand programming options, skinny bundles and other revenue generating models. The reflection of the same is quite visible from the overall bullishness seen in the industry.
The Zacks categorized Media Conglomerates industry has advanced 12.5% in the past three months, comfortably outperforming both the S&P 500 and the Dow Jones Industrial Average that gained 7.2% and 9.6%, respectively. In fact, it also outdid the broader Consumer Discretionary sector that increased 8%.
Like other media behemoths, Disney has contributed significantly in the bull run of the industry. Shares of this bellwether have surged 13.4% in the abovementioned time frame, notably outclassing both the industry as well as the sector.
Zacks Rank & Key Picks
Currently, Disney carries a Zacks Rank #3 (Hold). Better-ranked stocks include Gray Television, Inc. (GTN - Free Report) sporting a Zacks Rank #1 (Strong Buy) and Scripps Networks Interactive, Inc. carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Gray Television shares have increased 62% in the past six months.
Scripps Networks Interactive has a long-term earnings growth rate of 10.8% and its shares have increased more than 15% in the past three months.
Just Released – Driverless Cars: Your Roadmap to Mega-Profits Today
In this latest Special Report, Zacks’ Aggressive Growth Strategist Brian Bolan explores a full-blown technological breakthrough in the making – autonomous cars. He also spotlights 8 stocks with tremendous gain potential to feed off this phenomenon.Click to see the stocks right now >>