Media conglomerate Walt Disney Company (DIS - Free Disney Stock Report) closed the fiscal fourth quarter and full year on a soft note (year ended September 30th). We had looked for more modest results this year, but the House of Mouse actually experienced slight top- and bottom-line declines. Investors initially frowned upon the news, and the stock was down slightly in after-market trading, but it has since perked up.
Specifically, earnings per share came in at $1.07 and $5.69 for the quarter and full year, respectively, $0.27 below our final-quarter estimate and slightly below the full-year fiscal 2016 figure. Revenues came in about $863 million below our forecast, totaling $12.8 billion for the September period and $55.1 billion for fiscal 2017, with the latter representing a decline of 1%. All told, revenues and income were lower at all of Disney's operating units, save for Parks & Resorts (more below).
Media Networks struggled due to lower ad revenues, contractual rate increases for sports programming, and higher losses from its equity investments in Hulu and BAMTech. This was only partially offset by higher affiliate fees.
The performances of the Studio Entertainment and Consumer Products & Interactive Media segments paled in comparison to last year. Fiscal 2016 results were aided by the exceptional performance of the Star Wars franchise. The company just announced a slate of a new Star Wars films, and we believe that the Jedi franchise will support the Studio's results in the coming years.
The company's main bright spot, Parks & Resorts, benefited from results at both its domestic and international properties. Although Hurricanes Irma and Maria hurt its domestic parks' growth in the September period, higher guest spending and increased attendance across its properties spurred the segment's performance for the full year. Looking ahead, we believe Disney will continue to invest heavily in its theme parks. Indeed, the company is finishing up the construction of two Star Wars-lands at its domestic parks, and it is developing Toy Storyland at the Orlando facility. The company will likely also pursue other expansion projects at its global parks.
We think Disney's primary focus in the near term will be its new media distribution strategy. During the summer, management announced a direct-to-consumer growth plan. Disney recently acquired a majority stake in BAMTech. And it ought to leverage the technology of the media streaming service as it strengthens its platform. Indeed, we figure this move will increase the scale of its business and lead to greater digital ad opportunities. Too, the company may focus on using consumer data to improve its programming, as well as streaming capabilities. Disney is on track to launch ESPN Plus in the spring of 2018. The sports-branded service and app are to serve as a dynamic platform for sports fans. Likewise, the media conglomerate plans to launch a Disney-branded subscription streaming service in 2019. This platform will likely host the entire Disney, Pixar, Marvel, and Star Wars content library. Plus, the studio plans to distribute its films exclusively, along with original programming (including a live-action Star Wars series), on the streaming platform.
Meantime, news recently broke that Disney has been in talks with fellow media company Twenty-First Century Fox to buy its studio production wing, BSkyB. However, Disney management would not comment on press speculation, or discuss any pending acquisition. All in all, we imagine the company will continue to leverage its brand and focus on better monetizing its content in the near term. We expect Disney will ramp up capital spending in fiscal 2018, with the lion's share allocated to expanding its Parks & Resorts segment and rolling out the aforementioned direct-to-consumer strategy.
For now, we anticipate a modest top- and bottom-line rebound in the new fiscal year. Earnings may recover 5%, coming in at $6.00 a share, in fiscal 2018, while revenues should increase about 3%, to $56.8 billion.
The media conglomerate had registered dynamic revenue and profit advances prior to this year's more modest performance. The stock, which had been on a tremendous run into the early stages of this calendar year, has weakened on recent lackluster quarterly showings. This may continue to limit its near-term appeal. Appreciation potential to 2020-2022 also is modest. That said, we still think this blue-chip stock, given the company's sterling finances (Financial Strength rating of A++) and the issue's Safety rank of 1 (Highest), will continue to make for a nice addition to conservative accounts.
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.
