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Should You Stay Shy Of These ETFs on Disney's Q3 Miss?

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The Walt Disney Company (DIS - Free Report) disappointed investors with an earnings and revenue miss in third-quarter fiscal 2019.

Q3 Earnings in Focus

Adjusted earnings of $1.35 lagged the Zacks Consensus Estimate by 41 cents. The figure also declined 27.8% from the year-ago quarter. It is widely believed that a disappointing opening to the company’s theme park Star Wars: Galaxy’s Edge in Anaheim, CA, can be partially blamed on the company’s sluggish quarterly performance. Moreover, it is worth noting that, on Mar 20, Disney acquired Twenty-First Century Fox (21CF) for cash and an issuance of 307 million shares. The quarterly results take account of 21CF and Hulu LLC (Hulu) performance. These consolidations affected earnings by 60 cents as against management’s guidance of a negative impact of 35 cents.

Revenues of $20.25 billion were up 32.9% from the year-ago quarter. However, the figure missed the consensus mark of $21.68 billion. The company saw strength in the Media Networks, Parks, Experiences and Products, Studio Entertainment, Direct-to-Consumer & International businesses. Per management, Disney is set to launch Disney+ on Nov 12, boost its direct-to-consumer offerings. Moreover, the company’s Avengers: Endgame has surpassed the 10-year record set by James Cameron’s Avatar to become the highest grossing film in history (read: Tap Disney's Roaring Box Office Success With These ETFs).


For fourth-quarter fiscal 2019, Disney expects the Parks, Experiences and Products segment’s operating income to gain from a full quarter of Star Wars: Galaxy’s Edge at Disneyland and growth in merchandise licensing.

Market Impact

The stock has a Zacks Rank #3 (Hold) and it comes from a top-ranked Zacks industry(top 39%). Per CNBC, Disney has lost about 3.7% after-market on Aug 6. The stock lost as much as 4.9% on Aug 7.

ETFs in Focus

Disney’s dismal quarterly release is sure to impact the ETF world, especially funds that have the highest exposure to this media and entertainment conglomerate (see: all the Consumer Discretionary ETFs here).

Invesco Dynamic Leisure and Entertainment ETF (PEJ - Free Report)

This fund offers exposure to 30 US leisure and entertainment companies by tracking the Dynamic Leisure and Entertainment Intellidex Index. The Walt Disney occupies the sixth spot, making up for 5.13% allocation. The ETF has amassed $58.8 million in its asset base and charges 63 bps in annual fees. The fund has a Zacks ETF Rank #3 (Hold) with a High risk outlook. The fund remained steady post the earnings release (as of Aug 7) (read: 5 ETFs to Profit From July Fourth Celebrations).

PowerShares Dynamic Media Portfolio (PBS - Free Report)

PBS seeks to offer capital appreciation by investing in companies that are selected on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value by tracking the Dynamic Media Intellidex Index. This approach results in a basket of 30 stocks, with Disney occupying the third spot at 5.29%. The product has AUM of $62.7 million and an expense ratio of 0.63%. The fund has a Zacks ETF Rank #3 with a Medium risk outlook. The fund has lost 0.67% since the earnings release (as of Aug 7) (read: Sign In to Social Media ETFs as Twitter Soars on Q2 Results).

iShares Evolved U.S. Media and Entertainment ETF 

This actively-managed ETF employs data science techniques to identify companies with exposure to the media and entertainment sector. Holding 92 stocks in its basket, Disney occupies the top position in the basket with 7.11% share. The fund has accumulated $6.8 million in its asset base and charges 18 bps in annual fees. The fund has lost 0.45% since the earnings release (as of Aug 7) (read: Netflix Posts Q2 U.S. Subscriber Loss: ETFs to Watch).

Vanguard Communication Services ETF (VOX - Free Report)

This fund targets the communication sector by tracking the MSCI US Investable Market Communication Services 25/50 Index. Holding 114 stocks in its basket, Disney takes the fifth spot with 4.7% share. VOX has AUM of $1.96 billion and charges 10 bps in annual fees. The fund has lost 0.26% since the earnings release (as of Aug 7) (read: Antitrust Probe Likely to Hit These Tech ETFs).

Multifactor Media and Communications ETF 

This ETF follows the John Hancock Dimensional Media and Communications Index, which targets a wide range of U.S. media and communication stocks to exploit the sector's opportunities. It holds 65 stocks in its basket with DIS taking the top spot at 8.39% share. JHCS has AUM of $21.3 million and charges 40 bps in annual fees. The fund has lost 0.25% since the earnings release (as of Aug 7).

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