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Disney (DIS) Q2 2019 Earnings Preview: Streaming, Studio, Media Networks

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Disney (DIS - Free Report) shares have jumped over 15% since the company laid out at its April 11 investor day more of its plans for its direct-to-consumer streaming TV platform that hopes to challenge Netflix (NFLX - Free Report) and Amazon Prime (AMZN - Free Report) . Disney+ is set to launch in November and will cost $6.99 a month.

With that said, Wall Street and investors still need to know what to expect from the company’s quarterly financial results, which are due out after the closing bell on Wednesday. So, let’s see how Disney’s biggest units, from the ESPN-heavy Media Networks to its Studio Entertainment division and its new direct-to-consumer segment, are projected to perform in Q2 2019.  

Quick Overview

As we mentioned at the top, DIS stock has climbed in recent weeks to help push Disney shares up 32% over the last 12 months. This easily tops the overall Media Market’s 17.5% surge and the S&P 500’s 9%. Despite the recent strength, Disney shares experienced a long period of somewhat sideways movement over the last five years. Now, with Disney’s $71.3 billion purchase of key 21st Century Fox (FOXA - Free Report) assets, including its film and TV studios, complete and its streaming future on track, many investors seem ready to ride DIS into the future.

Disney does seem poised to remain a dominant force for years, if not decades to come. The company boasts a ton of vital live sports content, and it is ESPN+ streaming service has performed well. On top of that, its theme parks and resort business has grown, with its Fox deal set to bolster both its park offerings, box office releases, and streaming future.

Disney’s soon-to-be-launched streaming service that will house new and old content from Disney, Pixar, Star Wars, Marvel, and National Geographic, could easily stand out in an ever-more crowded industry. This industry will soon include Apple (AAPL - Free Report) , AT&T (T - Free Report) , and other big names. Let’s also not forget that Disney owns a controlling stake in quickly-expanding Hulu.

 

 

Q2 Outlook

Moving on, Disney’s second-quarter 2019 revenue is projected to climb 0.66% to hit $14.64 billion, based on our current Zacks Consensus Estimate. Last quarter, DIS’ sales came in roughly flat.

At the bottom end of the income statement, DIS’ adjusted quarterly earnings are projected to sink 13.6% to $1.59 per share. The company has also seen its earnings estimate revision activity trend in the wrong direction as its DTC spending and other expenses look set to eat more heavily away at near-term profits than previously anticipated.  

Before we dive into the individual company units, we should note that last quarter the media powerhouse changed how it breaks down its businesses as it enters a new streaming-focused phase.

Media Networks

Disney’s cable and broadcast division, which includes ESPN, make up the firm’s Media Networks unit that is projected to account for roughly 42% of the firm’s total quarterly revenue. This division is projected to dip marginally from the year-ago period to hit $6.107 billion, based on our current NFM estimates. Media Network saw its revenue pop 7% last quarter.

More specifically, Disney’s cable unit is expected to climb about 2% to reach $4.331 billion. Last quarter, the key division’s revenue climbed 4%. Meanwhile, the broadcast division is projected to slip marginally.

Parks, Experiences & Consumer Product

Disney’s Park and Resorts and consumer products revenue, which includes toys, is projected to jump 7% from the year-ago period to $5.219 billion. This would top last quarter’s 5% expansion in this key and growing segment—which will soon include two new Star Wars themed offerings at Disneyland and Disney World.

Studio Entertainment

Wall Street closely watches the company’s Studio Entertainment leg, but investors should remember that its quarterly performances can vary wildly based on movie release schedules and box office hits and flops. With that said, the company’s most volatile unit is projected to slip around 4% to $2.363 billion. Last quarter, Studio Entertainment revenue plummeted 27%, driven by the success of Star Wars: The Last Jedi and Thor: Ragnarok in Q1 2018 compared to Mary Poppins Returns in the first quarter of 2019.

 

 

Direct-to-Consumer & International

Lastly, let’s take a quick look at what to expect from Disney’s newest segment. Direct-to-Consumer & International revenue is projected to come in at $1.113 billion. This would mark a 21% sequential jump from Q1 2019’s $918 million.

Bottom Line

In the end, investors should make sure they pay close attention to the company’s direct-to-consumer spending as it ramps up ESPN+ and prepares to launch Disney+ on November 12. It is also worth pointing out that Disney’s full-year fiscal 2019 revenues are projected to surge 20%, driven by positive impact from its Fox acquisitions. Peeking even further ahead, Disney’s full-year fiscal 2020 revenue is expected to jump 16.6% above our current-year estimate.

With all of that said, Disney is a Zacks Rank #4 (Sell) at the moment based, in large part, on its negative earnings estimate revision activity. On top of that, DIS shares have already surged to new highs over the last few weeks. This means the anticipated Disney+ boost might already be priced-in, at least for now.

Disney is scheduled to release its Q2 2019 financial results after the closing bell on Wednesday, May 8. Make sure to come back to Zacks for a full breakdown of the company’s actual results then.

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