It has been about a month since the last earnings report for Walt Disney (DIS Quick QuoteDIS - Free Report) . Shares have added about 6.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Disney due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Disney Q3 Earnings Beat, Coronavirus Hits Revenues Hard

Disney reported third-quarter fiscal 2020 adjusted earnings of 8 cents per share, beating the Zacks Consensus Estimate by 118.6%. However, the figure plunged 94% year over year.

Revenues decreased 40.3% from the year-ago quarter to $11.78 billion and lagged the consensus mark by 6.9%.

The pandemic affected Disney’s segmental operating income by $3 billion net of cost mitigations.

Top-line Details

Media Networks’ (55.7% of revenues) revenues grew 6.3% year over year to $6.56 billion. Revenues from Cable Networks decreased 10% to $4.03 billion. However, Broadcasting revenues were up 12% year over year to $2.53 billion.

Media Networks’ segmental operating income jumped 47.6% year over year to $3.15 billion. Cable Networks’ operating income surged 50% to $2.46 billion. Broadcasting operating income soared 55% to $477 million.

Cable Networks’ operating income increased due to lower programming and production costs and higher affiliate revenues at ESPN, partially offset by lower advertising revenues due to the absence of major sporting events as a result of the coronavirus outbreak.

Moreover, lower marketing and programming costs benefited FX Network’s results.

The rise in broadcasting operating income was driven by lower network programming and production costs, an increase in affiliate revenues due to higher rates, higher program sales, and lower marketing partially offset by lower advertising revenues.

Parks, Experiences and Products segment revenues (8.3% of revenues) decreased 85% year over year to $983 million. Operating loss was $1.96 billion against year-ago quarter’s operating income of $1.72 billion.

Disney’s domestic parks and resorts, cruise line business and Disneyland Paris were closed in the reported quarter. Shanghai Disney Resort re-opened in May and Hong Kong Disneyland Resort, despite reopening in late June, was closed again in July.

Disney estimates that the coronavirus pandemic has hurt segmental operating income by $3.5 billion.

Studio Entertainment segment (14.8% of revenues) revenues decreased 54.7% to $1.74 billion. Operating income fell 15.7% to $668 million.

Theatrical distribution was hampered by coronavirus as theaters remained closed domestically and internationally. No significant titles were released in the quarter under review.

However, TV/SVOD distribution results benefited from the sales of content to Disney+, such as Star Wars: The Rise of Skywalker and Onward.

Direct-to-Consumer (DTC) & International Interactive Media segment’s (33.7% of revenues) revenues came in at $3.97 billion, up 2.4% year over year.

ESPN+ had 8.5 million paid subscribers at the end of the fiscal third quarter compared with 2.4 million at the end of the year-ago quarter.

Disney+, as of Jun 27, had 57.5 million paid subscribers. As of Aug 3, Disney+’s subscriber base had surpassed 60.5 million.

During the reported quarter, Disney launched Disney+ in India through its Disney+ Hotstar service, in France, in strategic partnership with Canal+, and in Japan via a limited launch with NTT DOCOMO.

Hulu ended the quarter with 35.5 million paid subscribers, up 27% year over year.

The average monthly revenue per paid subscriber for ESPN+ declined 22% year over year to $4.18 due to a shift in the mix of subscribers to Disney’s bundled offering and lower per-subscriber advertising revenue.

Notably, in November 2019, the company began offering a bundled subscription package of Disney+, ESPN+ and Hulu, which has a lower average retail price per service compared to the average retail price of each service on a standalone basis.

The average monthly revenue per paid subscriber for Disney+ was $4.62. Moreover, the average monthly revenue per paid subscriber for Disney’s Hulu SVOD-Only service slipped 10% year over year to $11.39 due to lower per-subscriber advertising revenue.

The average monthly revenue per paid subscriber for Disney’s Hulu Live TV + SVOD service rose 17% from the year-ago quarter to $68.11 owing to higher retail pricing and Live TV per-subscriber advertising revenues.

Operating loss widened to $706 million from $562 million reported in the year-ago quarter. Cost associated with ongoing launch of Disney+ eroded profitability.

Meanwhile, costs & expenses declined 33% year over year to $11.73 billion in the reported quarter.

Segmental operating income decreased 72.2% year over year to $1.10 billion.

Balance Sheet & Cash Flow

As of Jun 27, 2020, cash and cash equivalents were $23.12 billion compared with $14.34 billion as of Mar 31, 2020.

Total borrowings were $64.42 billion as of Jun 27, 2020 compared with $55.45 billion as of Mar 31, 2020. The company issued $11 billion of term debt in May and reduced its commercial paper balances by roughly $2 billion.

Cash provided by continuing operating activities was $1.16 billion compared with $3.16 billion in the previous quarter. The company had reported $1.75 billion cash used in operations in the year-ago quarter.

Free cash flow at the end of the quarter was $454 million compared with $1.91 billion in the previous quarter. Disney had reported free cash outflow of $2.93 billion in the year-ago quarter.

Outlook

Disney is set to launch Disney+ in Nordics, Belgium, Luxembourg and Portugal in September, and in Latin America in November 2020. Disney+ Hotstar will be launched on Sep 5 in Indonesia. By year end, Disney+ will be available in nine of the top 10 economies in the world.

Moreover, Disney announced that its much-anticipated movie Mulan will be offered to Disney+ subscribers in the United States, Canada, Australia, New Zealand and a number of countries in Western Europe on a premier-access basis, beginning Sep 4. The movie will be available to the U.S. Disney+ subscribers for $29.99.

Further, Disney will launch Mulan in theaters in those markets where it is yet to launch Disney+.

Additionally, Disney announced its plan to launch an international direct-to-consumer general-entertainment offering under the Star brand in calendar year 2021.

Markedly, several live sporting events resumed on ESPN this current quarter including Major League Soccer on July 8, Major League Baseball on July 23, and the NBA. Disney expects ESPN's ad sales in the fourth quarter, including the benefit of the 53rd week, to benefit significantly, particularly from the NBA.

Additionally, Disney expects DTC and the international segment to generate roughly $1.1 billion in operating losses for the fourth quarter. However, DTC loss is expected to improve by nearly $100 million year over year, driven by lower losses at Hulu and ESPN+ partially offset by continued investment in Disney+.

Further, Disney expects total capital expenditure for fiscal 2020 to be about $700 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -1114.69% due to these changes.

VGM Scores

Currently, Disney has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Disney has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.