Media conglomerate Walt Disney (DIS – Free Disney Stock Report) issued fiscal third-quarter results (year ends September 29th). The company also gave an update about its pending acquisition of Twenty-First Century Fox (FOXA). Despite a relatively good earnings report, the stock seemed little changed following the news.
Revenues were up 7%, coming in at $15.228 billion (slightly ahead of our $15.115 billion estimate). And diluted share earnings jumped 29% to $1.95 a share, handily beating our $1.70-per-share forecast. Excluding certain items, such as higher programming costs and the writedown of some underperforming theatrical vehicles, the bottom line advanced at a more moderate 18% clip, to $1.87 a share.
Much of the media company's success during the period was thanks to its Studio Entertainment and Park & Resorts divisions. Indeed, Studio Entertainment saw income rise 11% during the term. The box office hits Incredibles 2 and Avengers: Infinity War 2 boosted its theatrical releases, and offset higher marketing and operating expenses at this segment. Meanwhile, profits at Parks & Resorts grew about 15% on a sequential basis. Increased guest spending at its Parks countered the unfavorable timing of Easter vacation (which impacted visitor volume).
That good news, however, overshadowed difficulties at Disney's Media Networks and Consumer Products/Interactive Media segments. Losses from the BAMTech investment, namely higher operating costs, associated with the launch of ESPN+ and the decrease in Equity in the Income of Investees countered the gains it achieved from its broadcasting and cable assets. Lastly, lower licensing activities weighed on Disney's Consumer Products/Interactive Media arm.
Management emphasized that it is on track to launch a Disney streaming service in late 2019. The media conglomerate plans to better leverage its content in a direct-to-consumer platform. Too, it announced that it was creating a live action and an animated Star Wars series to bring the Jedi franchise to the small (and more likely, mobile) screen.
Turning to the Twenty-First Century Fox merger, management reiterated that the acquisition would complement Disney's brands and franchises, expand its global reach, and widen its distribution network. To review, Disney offered to buy Fox last December and amended its offer earlier this summer. It plans to acquire the bulk of the media company's properties for roughly $66 billion in cash and stock. The deal has earned a blessing from shareholders. Plus, in June, it got the go-ahead from the U.S. Department of Justice, and the tie-up now awaits regulatory approvals from a number of international entities. And Disney expects the acquisition to close by the end of fiscal 2021 or fiscal 2022, depending on how Fox's Sky transaction works out. The combination of the two media giants would enable Disney to contend with competitors, specifically content generators Netflix (NFLX) and Amazon.com (AMZN).
All told, we have added a dime to our fiscal 2018 share-net estimate, and now look for earnings to increase 20% to $6.85 a share, for the full year.
These shares have had a tremendous run-up in price over the past few years. And we look for the House of Mouse to continue to gain steam over the next few years. That said, this issue may face some bumps in the road due to speculation regarding the Fox tie-up.
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.
- Orly Seidman
