What To Expect From Disney’s Q1 FY 2016 Earnings?

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Disney will report its Q1 earnings for fiscal 2016 on February 9th. (The fiscal year ends with September.) What to we expect to learn? Below we will provide our thoughts in  detail But first let us share key points in a direct tabular fashion.  The chart below highlights our 2015 (calendar year) result estimates for Disney (NYSE:DIS).

Screenshot 2016-02-05 10.20.05

We’ll be closely watching for the trends in cable networks business amid lower television ratings and subscriber losses. In fact, ESPN lost 3 million subscribers in fiscal 2015. [1] This can be attributed to rising pay-TV bills and the growth of digital video platforms, which have encouraged the cord-cutting phenomenon. Besides subscriber losses, ESPN also saw a double-digit ratings drop for some of the College Football Playoff games, including the final, which was down 23% as compared to the prior year telecast. [2] It should be noted that concerns over ESPN led to a 15% drop in Disney’s stock price in the last 3 months despite the massive success of Star Wars.

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The company’s studio entertainment business will surely be the key earnings growth driver this quarter led by the stellar success of Star Wars: The Force Awakens at the global box-office, with grossing of close to $2 billion. However, currency issues will likely have an adverse impact on the studio’s performance. Star Wars related merchandise sales during the holiday period will also aid the consumer products segment revenues.

Looking at the theme parks, we expect steady growth in attendance and average guest spending. For FY 15, Disney World ad Disneyland saw 15% uptick in attendance, primarily due to an extra week in 2015. However, even if we adjust for the extra week, attendance was still up 7%. It will be interesting to see if the company reports similar attendance growth in the December quarter. We currently estimate the attendance to grow 5% in calendar year 2015 to 81 million and estimated per capita guest spending of $138, translating into U.S. theme park revenues of $11.1 billion and EBITDA of $3.4 billion, representing 20% of the company-wide EBITDA.

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Notes:
  1. Disney’s SEC Filings []
  2. ESPN’s Ratings Drop For College Football Playoff, The Wall Street Journal, Jan 12, 2016 []