Disney Q1 Earnings Preview: Parks & Resorts, Studio Hold The Key

With media giant, The Walt Disney Company DIS slated to report first-quarter fiscal 2018 results on Feb 6, investors are hoping for change in fortune after a disappointing 2017. In fiscal 2017, the company not only witnessed decline in both the top and bottom lines but also witnessed sharp fall in the operating income. Let's find out how the company is going to fare in the quarter to be reported.

What to Expect?

The question lingering in investors' minds now is whether Disney will be able to post positive earnings surprise in the quarter to be reported. The Zacks Consensus Estimate for first-quarter 2018 is currently pegged at $1.60. We observed that the consensus estimate has increased by a penny in the past 30 days, which reflects a year-over-year increase of nearly 3.2%. This ushers some confidence in the stock that had witnessed an earnings decline of 3% in the preceding quarter. Meanwhile, analysts polled by Zacks expect first-quarter revenues of $15,196 million, up 2.8% from the year-ago period.

Unleashing the Key Segments

Media Networks Likely to Gain

After witnessing a decline of 3% in the preceding quarter, the segment is likely to register a year-over-year improvement of 1.8% to $6,346 million, per analysts surveyed by Zacks, driven by gain in revenues at Cable Networks. Meanwhile, per analysts polled by Zacks, Cable Networks and Broadcasting are anticipated to report revenues of $4,531 million and $1,813 million up 2.3% and 0.4%, respectively.

Falling subscriber base and higher programming costs at ESPN remain major concerns. Fresh NBA agreement and increase in contractual rate for NFL programming has been driving the overall programming cost higher for ESPN.

Disney is striving to bring back ESPN's golden days. However, it will take some time before the segment makes a strong come back. In an effort to attract online viewers, the company has inked a deal with video streaming, data analytics as well as commerce management company BAMTech. Moreover, the company will start online streaming services for ESPN sports in early 2018 and its branded direct-to-consumer streaming service in 2019 will carry Disney movies as well as TV shows. The ESPN-branded multi-sport streaming service will give an option to enjoy 10,000 live international, national and regional games every year. Tournaments like Major League Baseball, National Hockey League, Major League Soccer, Grand Slam tennis, and college sports will be live streamed.
Parks & Resorts Continues to Attract Visitors

Disney's Parks & Resorts division, which have done exceptionally well in fiscal 2017, is likely to sustain the momentum in first-quarter fiscal 2018. In fourth-quarter fiscal 2017, the segment reported revenue increase of 6% following gains of 12%, 9% and 6% in the third, second and first quarter, respectively. The consensus mark for revenues from the segment for the first-quarter is pegged at $4,866 million, up 6.8% year over year. Disney is focused on deploying its capital toward expansion of the Parks and Resorts business, consequently increasing market share and creating long-term growth opportunities.

Star Wars: The Last Jedi to Lift Studio Segment

Disney's Studio segment, which impressed investors with blockbuster hits in 2016, has somewhat disappointed in 2017 as the year has been dull for the movie industry. However, the company's latest flick, Star Wars: The Last Jedi has performed well at the box office. Moreover, Thor: Ragnarok and Coco were also released during the quarter and did solid business at the box office. So far, Star Wars: The Last Jedi, Thor: Ragnarok and Coco have garnered above $1.3 billion, $850 million and $680 million, respectively. Analyst polled by Zacks expects Studio segment revenues of $2,767 million, down 9.8% year over year.

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