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Will Disney Earnings Spell Magic for Consumer ETFs?

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One of the largest global entertainment companies, The Walt Disney Company (DIS), has reported impressive results for its fiscal second quarter 2014. Thanks to the stunning success of its blockbuster animated film "Frozen", the company’s profits and revenues came in well past our estimates. While the company reported a 41% jump in its earnings, revenues rose 10% year over year.

Walt Disney Earnings in Focus

Disney clocked earnings per share (EPS) of $1.11, well ahead of the Zacks Consensus Estimate of 97 cents. Moreover, revenues jumped 10% year over year to $11.65 billion, beating the Zacks Consensus Estimate of $11.22 billion.

Disney's studio entertainment segment saw the biggest increase in operating income, up more than 100% year over year, buoyed by the incredible success of Frozen and Thor: The Dark World (read: 3 Consumer Discretionary ETFs Set to Surge).

Every single business segment of the company reported a jump in revenues. While the company’s Studio segment reported the biggest jump and brought in $1.8 billion in the company's fiscal Q2, Disney's Parks and Resorts fetched $3.56 billion, and Media and Networks $5.13 billion in the quarter.

Even the company’s struggling Interactive segment reported an operating profit of $14 million compared with a $54 million loss incurred a year earlier, primarily due to strength in sales of the Disney Infinity video game.

ETFs to Watch

Propelled by solid earnings results, Disney shares gained 0.56% following the earnings announcement in the after-market eventually closing a tad lower in the regular market.

Given the solid results and also considering the fact that the stock is decently valued at current levels (P/E is at 22), the stock might again move northwards to test its 52-week high of $83.65. This is especially true as Disney has a Zacks Rank #2 (Buy), suggesting it is expected to outperform the broader markets in the near term.

As a result, Consumer Discretionary ETFs that have the highest allocation to Disney are sure to be in focus in the coming days. Investors should closely monitor the movement of these funds and tap the opportunity from any gain in Disney’s share price.

Though the sector saw some rough trading during the first quarter, recent positive economic data indicates strength in this beaten down consumer discretionary sector in the coming days (read: 5 Best Performing ETFs of the 5 Year Bull Run).

Consumer Discretionary Select Sector SPDR Fund (XLY)

With an asset base of $4.9 billion, XLY is the largest and most popular ETF in its space. Holding 85 shares in its basket, the product looks moderately concentrated in the top 10 holdings. Walt Disney takes the second spot in the fund having 6.5% exposure (see: all the Consumer Discretionary ETFs here).

From a sector look, media takes the top spot with 29.6% of assets, followed by specialty retail (17.7%), hotels and restaurants (14%), and Internet retail (11.3%).

The product has gained roughly 2% in the past one week, after having gained 5.5% in the past three months.

PowerShares Dynamic Media Portfolio (PBS)    

PBS looks to provide enhanced exposure to the Dynamic Media Intellidex Index. The product holds a basket of 30 securities (read: A Comprehensive Guide to Retail ETFs).

The fund is well-diversified across industries like Internet & mobile applications (25%), cable & satellite (20%), television and radio (11%) and movies, entertainment (8%), and advertising (8%).

The product allocates roughly 45% of its assets to the top 10 holdings. DISH Network Corp, Time Warner Cable Inc. and Walt Disney rank among the top 10.

Dynamic Leisure & Entertainment Portfolio (PEJ)

PEJ seeks to track the Dynamic Leisure and Entertainment Intellidex Index. PEJ invests about $182.3 million of assets in 31 holdings. Marriott International Inc., Walt Disney and Hilton Worldwide Holdings are the top three holdings each having more than 5% share in the basket.

The product charges 60 basis points and has gained 3.7% in the past week.

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