Disney shares plunge as earnings rise but miss estimates
Shares of The Walt Disney Co. (DIS) tumbled 5% Tuesday after the media giant reported second-quarter earnings and revenue that fell short of Wall Street estimates.
The company said earnings rose 2% as Star Wars and Disney resorts’ performance helped offset flat revenue at its television businesses. But earnings per share, after adjusting for some items, were $1.36, short of the $1.40 estimated by analysts polled by S&P Global Market Intelligence. Net income for the period that ended April 2 totaled $2.14 billion vs. $2.1 billion a year ago.
Revenue rose 4% to $12.97 billion. Analysts had estimated $13.2 billion.
The results came out after the market closed and shares plunged 5.4% to $100.90 in after-hours trading. The stock rose 1.2% in regular trading to close at $106.60.
Analysts noted a number of factors that led to Disney’s failure to meet their expectations. Barclays said Disney appears to be having a tougher time in its media network segment, which includes sports giant ESPN. It also underperformed in consumer products.
“Despite the continued lack of visibility on Disney’s CEO succession plans and the underperformance over the course of this year, Disney continues to be the most expensive media stock” wrote analysts Kannan Venkateshwar, Shelley Yang and Divyaunsh Divatia in a note to investors.
Revenue for the media networks unit, Disney’s largest business division that runs ABC, ESPN and other TV networks, was flat at $5.8 billion. The unit’s cable networks business saw its revenue decline 2% to $4 billion but operating income rise 12% due to higher affiliate fees ESPN collected from pay-TV companies.
But ESPN’s higher affiliate revenue derived from rising rates, not improved ratings. Mirroring the trend it saw last year, its subscriber base fell again during the quarter. ESPN’s ratings have been a concern for investors, contributing to Disney’s falling stock price for much of last year. After the first quarter, Disney chairman and CEO Robert Iger said ESPN’s ratings were on the rebound. And ESPN also settled its year-long lawsuit with Verizon over Verizon’s new TV channel bundling program that left out ESPN from a base package option.
Broadcasting revenue increased 3% to $1.8 billion due to higher advertising sales rates.
The parks and resorts unit, which is preparing to open its latest Disney theme park, Shanghai Disney Resort, on June 16, reported a 4% revenue gain to $3.9 billion. Its operating income climbed 10% as ticket prices continue to rise at theme parks and cruises, and customers spent more on food, beverages and merchandise. The Shanghai resort is “authentically Disney and distinctly Chinese,” Iger said during a call with analysts Tuesday. “We have a very optimistic outlook (for the resort).”
The studio entertainment unit, which runs its movie studio, continues to reap benefits from its mega-blockbuster that was released in December, Star Wars: The Force Awakens. It also released Zootopia during the quarter, which has garnered more than $930 million in box office sales. Revenue for the unit rose 22% to $2.1 billion.
The consumer products and interactive media unit’s revenue fell 2% to $1.2 billion, partially due to cooling merchandise sales of items based to Frozen.
“We’re very pleased with our overall results in Q2, which marks our 11th consecutive quarter of double-digit growth in adjusted EPS (earnings per share),” Iger said in a statement. “Our studio’s unprecedented winning streak at the box office underscores the incredible appeal of our branded content, which we continue to leverage across the entire company to drive significant value.”