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Why Is Disney (DIS) Up 21.1% Since Last Earnings Report?
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A month has gone by since the last earnings report for Walt Disney (DIS - Free Report) . Shares have added about 21.1% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.
Disney Misses on Earnings & Revenues in Coronavirus-Hit Q2
Disney reported second-quarter fiscal 2020 adjusted earnings of 60 cents per share, missing the Zacks Consensus Estimate by 27.7% and also plunging 63% year over year.
Although revenues increased 20.7% from the year-ago quarter to $18.01 billion, the same lagged the consensus mark by 0.14%.
Disney closed its domestic parks and hotels indefinitely, suspended cruise line, halted film and TV productions and shuttered retail stores in mid-March due to the coronavirus outbreak.
The pandemic affected Disney’s income from continuing operations before income taxes by $1.4 billion.
Segment Details
Media Networks
Media Networks’ (40.3% of revenues) revenues grew 27.7% year over year to $7.26 billion. Revenues from Cable Networks increased 17% to $4.45 billion. Broadcasting revenues were up 49% year over year to $2.81 billion.
Media Networks’ segment operating income increased 7% year over year to $2.38 billion. Cable Networks’ operating income inched up 1% to $1.80 million. Broadcasting operating income surged 53% to $397 million.
Cable Networks’ operating income increased on the addition of the TFCF Corporation (TFCF) businesses (mainly the FX and National Geographic networks), partially offset by a decrease in ESPN, the Domestic Disney Channels and Freeform revenues.
ESPN’s advertising revenues declined due to lower average viewership on account of cancellation of major sporting events beginning mid-March as a result of the coronavirus outbreak. Moreover, ESPN’s results were negatively impacted by higher programming and production costs, somewhat negated by an increase in affiliate revenues.
Higher programming costs were due to rate increases for College Football Playoffs and other college sports as well as increased costs for the ACC Network, launched in August 2019.
Affiliate revenues benefited from contractual rate increases, partially offset by a decline in subscribers.
The rise in broadcasting operating income was driven by the TFCF consolidation, largely reflecting program sales, and to a lesser extent, a ramp-up in Disney’s legacy operations.
Parks, Experiences and Products
The segment’s revenues (30.8% of revenues) decreased 10.2% year over year to $5.54 billion. Operating income dropped 57.6% to $639 million.
Segmental results were adversely impacted by decreases at both domestic and international parks and experiences businesses. Games and merchandise licensing businesses also suffered in the reported quarter.
Disney closed its domestic parks and resorts, cruise line business and Disneyland Paris in mid-March while parks and resorts in Asia were shut down earlier in the quarter. The closures dented volumes. Attendance at domestic parks declined 11% in the fiscal second quarter.
Per Disney, the coronavirus pandemic hurt segmental operating income by roughly $1 billion.
Studio Entertainment Details
Studio Entertainment segment (14.1% of revenues) revenues increased 17.7% to $2.54 billion.
Operating income fell 7.9% to $466 million. This downside was attributed to weak results at legacy operations due to higher film impairments and decreases in theatrical distribution and stage play results.
Theatrical distribution was hampered by coronavirus as theaters closed domestically beginning mid-March and internationally at various times starting late January.
Coronavirus outbreak affected the performance of Onward, released domestically on Mar 6. Stage play results were negatively impacted by the closure of live entertainment theaters.
However, TV/SVOD distribution results benefited from the sales of content to Disney+, such as The Lion King, Toy Story 4, Frozen II and Aladdin. TFCF theatrical releases in the current quarter included Call of the Wild and Downhill.
Direct-to-Consumer (DTC) & International Interactive Media
This segment’s (22.9% of revenues) revenues came in at $4.12 billion, up from $1.15 billion reported in the year-ago quarter.
ESPN+ had 7.9 million paid subscribers at the end of the fiscal second quarter compared with 2.2 million at the end of the year-ago quarter.
Disney+, which was launched on Nov 12, 2019, won 33.5 million paid subscribers within its fold. As of May 4, the company estimates Disney+ subscriber base to be 54.5 million.
Hulu ended the quarter with 32.1 million paid subscribers, up 27% year over year.
The average monthly revenue per paid subscriber for ESPN+ declined 17% year over year to $4.24 due to a shift in the mix of subscribers to Disney’s bundled offering.
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 $5.63. Moreover, the average monthly revenue per paid subscriber for Disney’s Hulu SVOD Only service slipped 5% year over year to $12.06 due to lower retail pricing.
The average monthly revenue per paid subscriber for Disney’s Hulu Live TV + SVOD service rose 29% from the year-ago quarter to $67.75 owing to higher retail pricing.
Operating loss widened to $812 million from $385 million in the year-ago quarter. Consolidation of Hulu and ongoing investments in ESPN+ and Disney+ eroded profitability.
Other Quarterly Details
Costs & expenses surged 44.3% year over year to $16.64 billion in the reported quarter.
Segmental operating income decreased 37% year over year to $2.42 billion.
Balance Sheet & Cash Flow
As of Mar 31, 2020, cash and cash equivalents were $14.34 billion compared with $6.83 billion as of Dec 31, 2019.
During the quarter, Disney issued $6 billion of term debt, which raised its cash balance. In the beginning of the second quarter, the company issued another $925 million in term debt.
Total borrowings were $55.45 billion as of Mar 31, 2020 compared with $48.08 billion as of Dec 31, 2019.
Disney’s new $5-billion 364-day bank facility combined with its existing credit facilities of $12.25 billion enhanced its total credit facility capacity to $17.25 billion.
Moreover, Disney decided to forego the semi-annual dividend payment for the first half of the current fiscal year, thereby saving $1.6 billion in cash.
Cash provided by continuing operating activities declined 19% year over year to $3.16 billion. Free cash flow at the end of the quarter was $1.91 billion, down 30% year over year.
Outlook
Disney+ will be available in Japan during June, followed by the Nordics, Belgium, Luxembourg and Portugal in September while Latin America will follow toward the end of 2020.
Further, Disney expects total capital expenditure for fiscal 2020 to be about $900 million, indicating a decline from its prior guidance or a fall of $400 million from the reported 2019-level.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -270.31% due to these changes.
VGM Scores
At this time, Disney has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, 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 these revisions indicates a downward shift. It's no surprise Disney has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Why Is Disney (DIS) Up 21.1% Since Last Earnings Report?
A month has gone by since the last earnings report for Walt Disney (DIS - Free Report) . Shares have added about 21.1% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.
Disney Misses on Earnings & Revenues in Coronavirus-Hit Q2
Disney reported second-quarter fiscal 2020 adjusted earnings of 60 cents per share, missing the Zacks Consensus Estimate by 27.7% and also plunging 63% year over year.
Although revenues increased 20.7% from the year-ago quarter to $18.01 billion, the same lagged the consensus mark by 0.14%.
Disney closed its domestic parks and hotels indefinitely, suspended cruise line, halted film and TV productions and shuttered retail stores in mid-March due to the coronavirus outbreak.
The pandemic affected Disney’s income from continuing operations before income taxes by $1.4 billion.
Segment Details
Media Networks
Media Networks’ (40.3% of revenues) revenues grew 27.7% year over year to $7.26 billion. Revenues from Cable Networks increased 17% to $4.45 billion. Broadcasting revenues were up 49% year over year to $2.81 billion.
Media Networks’ segment operating income increased 7% year over year to $2.38 billion. Cable Networks’ operating income inched up 1% to $1.80 million. Broadcasting operating income surged 53% to $397 million.
Cable Networks’ operating income increased on the addition of the TFCF Corporation (TFCF) businesses (mainly the FX and National Geographic networks), partially offset by a decrease in ESPN, the Domestic Disney Channels and Freeform revenues.
ESPN’s advertising revenues declined due to lower average viewership on account of cancellation of major sporting events beginning mid-March as a result of the coronavirus outbreak. Moreover, ESPN’s results were negatively impacted by higher programming and production costs, somewhat negated by an increase in affiliate revenues.
Higher programming costs were due to rate increases for College Football Playoffs and other college sports as well as increased costs for the ACC Network, launched in August 2019.
Affiliate revenues benefited from contractual rate increases, partially offset by a decline in subscribers.
The rise in broadcasting operating income was driven by the TFCF consolidation, largely reflecting program sales, and to a lesser extent, a ramp-up in Disney’s legacy operations.
Parks, Experiences and Products
The segment’s revenues (30.8% of revenues) decreased 10.2% year over year to $5.54 billion. Operating income dropped 57.6% to $639 million.
Segmental results were adversely impacted by decreases at both domestic and international parks and experiences businesses. Games and merchandise licensing businesses also suffered in the reported quarter.
Disney closed its domestic parks and resorts, cruise line business and Disneyland Paris in mid-March while parks and resorts in Asia were shut down earlier in the quarter. The closures dented volumes. Attendance at domestic parks declined 11% in the fiscal second quarter.
Per Disney, the coronavirus pandemic hurt segmental operating income by roughly $1 billion.
Studio Entertainment Details
Studio Entertainment segment (14.1% of revenues) revenues increased 17.7% to $2.54 billion.
Operating income fell 7.9% to $466 million. This downside was attributed to weak results at legacy operations due to higher film impairments and decreases in theatrical distribution and stage play results.
Theatrical distribution was hampered by coronavirus as theaters closed domestically beginning mid-March and internationally at various times starting late January.
Coronavirus outbreak affected the performance of Onward, released domestically on Mar 6. Stage play results were negatively impacted by the closure of live entertainment theaters.
However, TV/SVOD distribution results benefited from the sales of content to Disney+, such as The Lion King, Toy Story 4, Frozen II and Aladdin. TFCF theatrical releases in the current quarter included Call of the Wild and Downhill.
Direct-to-Consumer (DTC) & International Interactive Media
This segment’s (22.9% of revenues) revenues came in at $4.12 billion, up from $1.15 billion reported in the year-ago quarter.
ESPN+ had 7.9 million paid subscribers at the end of the fiscal second quarter compared with 2.2 million at the end of the year-ago quarter.
Disney+, which was launched on Nov 12, 2019, won 33.5 million paid subscribers within its fold. As of May 4, the company estimates Disney+ subscriber base to be 54.5 million.
Hulu ended the quarter with 32.1 million paid subscribers, up 27% year over year.
The average monthly revenue per paid subscriber for ESPN+ declined 17% year over year to $4.24 due to a shift in the mix of subscribers to Disney’s bundled offering.
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 $5.63. Moreover, the average monthly revenue per paid subscriber for Disney’s Hulu SVOD Only service slipped 5% year over year to $12.06 due to lower retail pricing.
The average monthly revenue per paid subscriber for Disney’s Hulu Live TV + SVOD service rose 29% from the year-ago quarter to $67.75 owing to higher retail pricing.
Operating loss widened to $812 million from $385 million in the year-ago quarter. Consolidation of Hulu and ongoing investments in ESPN+ and Disney+ eroded profitability.
Other Quarterly Details
Costs & expenses surged 44.3% year over year to $16.64 billion in the reported quarter.
Segmental operating income decreased 37% year over year to $2.42 billion.
Balance Sheet & Cash Flow
As of Mar 31, 2020, cash and cash equivalents were $14.34 billion compared with $6.83 billion as of Dec 31, 2019.
During the quarter, Disney issued $6 billion of term debt, which raised its cash balance. In the beginning of the second quarter, the company issued another $925 million in term debt.
Total borrowings were $55.45 billion as of Mar 31, 2020 compared with $48.08 billion as of Dec 31, 2019.
Disney’s new $5-billion 364-day bank facility combined with its existing credit facilities of $12.25 billion enhanced its total credit facility capacity to $17.25 billion.
Moreover, Disney decided to forego the semi-annual dividend payment for the first half of the current fiscal year, thereby saving $1.6 billion in cash.
Cash provided by continuing operating activities declined 19% year over year to $3.16 billion. Free cash flow at the end of the quarter was $1.91 billion, down 30% year over year.
Outlook
Disney+ will be available in Japan during June, followed by the Nordics, Belgium, Luxembourg and Portugal in September while Latin America will follow toward the end of 2020.
Further, Disney expects total capital expenditure for fiscal 2020 to be about $900 million, indicating a decline from its prior guidance or a fall of $400 million from the reported 2019-level.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -270.31% due to these changes.
VGM Scores
At this time, Disney has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, 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 these revisions indicates a downward shift. It's no surprise Disney has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.