What To Expect From Disney’s Q1

by Trefis Team
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Disney (NYSE: DIS) is scheduled to announce its fiscal first quarter results on Tuesday, February 6. The company had a fairly soft fiscal 2017 (fiscal year ends September 2017), with total revenue declined 1% year-over-year (y-o-y) to $55.1 billion, primarily due to a fall in Studio revenues, weakness in the Consumer Products segment, and a continued decline in the Media Networks segment. As expected, ESPN has remained a concern for Disney as well. However, the company was able to rely on the Parks & Resorts business to offset that top line pressure, led by its international operations. The company also posted earnings of $5.73 per share, down 1% y-o-y. We have created an Interactive Dashboard which outlines our forecasts for the company and our expectations for its Q1 earnings. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.

Media Networks Could Grow In Fiscal 2018

In fiscal 2017, Disney’s Media Networks revenue declined 1% y-o-y to $23.5 billion, while its segment operating income decreased 11% y-o-y to $7 billion. This was driven by a decline in both Broadcasting and Cable Networks, due to lower impressions and advertising, partially offset by higher rates. Disney was largely impacted by higher programming expenses at ESPN due to the first year of the new NBA contract and ESPN’s falling prime-time viewership. However, ESPN’s viewership grew 13% y-o-y in the evening time period across both TV and streaming in this quarter. The network also claimed the most-watched cable network title in the December quarter. Despite the weak trends witnessed by the company, we expect 2018 to be better than 2017 in Media Networks.

Strong Studio Performance In Q1

Disney’s Studio business had a somewhat soft year relative to fiscal 2016, but that was largely due to difficult comps to key titles in the prior year, including Star Wars: The Force Awakens, Captain America: Civil War and The Jungle Book. However, we expect a fairly strong first quarter for the company with respect to its Studio Operations and Consumer Products segment in Q1. The studio benefited from the release of two major franchise entries – Thor: Ragnarok and Star Wars: The Last Jedi – which together collected nearly $1 billion at the domestic box office.

Future Outlook

In fiscal 2018, Disney expects its earnings to be negatively impacted by the consolidation of BAMTech and its ongoing investment in the business. In addition, it expects a $1 billion increase in its capital expenditures due to the continued investment in Parks and Resorts, which is expected to benefit from another operational year of the Shanghai Resort. In Studio Operations, the company plans to release one Star Wars film (Han Solo) and three Marvel films (Black Panther, Avengers: Infinity War, Ant-Man, and the Wasp) in fiscal 2018. The lineup should help the company lift its Studio and Consumer Products revenues going forward.

In addition, Disney also previously announced that it will acquire much of 21st Century Fox‘s (NYSE: FOX) portfolio in a stock deal valued at $52.4 billion, integrating much of Fox’s studio and television network operations into its business. The transaction, which is subject to regulatory approval, is expected to close in the coming 12-18 months. Disney expects Fox’s segments to contribute meaningfully to its business by fiscal 2019.

Our $111 price estimate for Disney’ stock is slightly ahead of the current market price.

Please refer to our complete analysis for Disney

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