Entertainment and media conglomerate Walt Disney Company (DIS - Free Disney Stock Report) registered lackluster fiscal 2017 first-quarter results (year ends September 30th). Earnings decreased 10%, to $1.55 a share, $0.20 short of our estimate, and revenues slipped 3%, to $14.784 billion, $516 million below our expectations. However, the first fiscal quarter of 2016 was the most successful in the media conglomerate's history, which contributed to the soft comparisons in the recent quarter.
Disney has experienced dynamic top- and bottom-line gains over the last few years, but will growth begin to moderate at the House of Mouse? The stock, which has also had a tremendous run up in price over the last five years, is up modestly in early trading today.
The company saw year-over-year revenue and profit declines in all of its business categories, save for its Parks & Resorts segment. Last year's performance was spurred by the Star Wars and Frozen franchises, which provided much lift to its Studio Entertainment and Consumer Products segments, thanks to the related merchandising push.
Parks & Resorts saw a 13% profit increase during the period. The success of the recently opened Shanghai Disney location boosted international totals (the park saw a nice boost from higher attendance over the Chinese New Year break).
The Parks & Resorts division may report sequential declines in the March period due to the timing of the holiday season; even though one week of the winter holidays fell into the second quarter, the Easter holiday will be take place in the June period. But, looking further ahead, the expansion of its domestic parks, with the upcoming opening of the Avatar-themed Pandora in the Animal Kingdom in late May; and Star Wars-land, scheduled to open during calendar 2019, should continue to support this division.
Disney's Media Networks had a ho-hum quarter, owing to lower advertising revenues, mixed affiliate revenues, higher programming costs, and the timing of certain sporting events. Nevertheless, the company's focus on expanding ESPN's market position should help this segment in the near future. Indeed, the sports network plans to launch multichannel services, roll out mobile apps, and continue to invest in its programming. Plus, we imagine it will bolster its technology platforms, especially with the help of its BAMTech partnership.
The Studio Entertainment division could not match last year's success from the reboot of the Star Wars franchise. And even though the media conglomerate has a hefty theatrical slate, it only has the live-action remake of Beauty and the Beast slated for the March period, which may also negatively impact its year-to-year comparisons.
All in all, Disney's ongoing investments in its content and core brands should lead to decent top- and bottom-line growth down the road. And its ongoing stock-buyback program should boost per-share comparisons in the near term.
That said, we feel that the media empire's gains may begin to moderate in fiscal 2017. As such, we are pruning our estimates slightly. We now look for revenues and profits to grow at a 2%-3% clip this year, to $57 billion and $5.90, respectively.
About The Company: The Walt Disney Company operates Media Networks such as ABC and ESPN, and Studio Entertainment. Its world famous parks and resorts include Disneyland, Walt Disney World (Magic Kingdom, Epcot, and Disney’s Hollywood Studios), while the company earns royalties from Tokyo Disneyland and manages Disneyland Resort Paris and Hong Kong Disneyland. It also operates a cruise line and Consumer Products and Interactive Media segments. ABC was acquired in February, 1996; Pixar in May, 2006; and Marvel in December, 2009.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
