The performance of Disney's (DIS) television unit was the headline during the media company's previous earnings release and the market is sure to focus on that segment of the company's business this time around also.
Analysts polled by Thomson Reuters are expecting Disney to report earnings of $1.39 per share on revenue of $14.76 billion in revenue. Those totals are ahead of the $1.27 per share on revenue of $13.39 billion the company reported a year ago.
Despite headwinds in its media networks segment -- which accounted for about 44% of the company's overall revenue in 2015 -- Disney reported double-digit operating income growth in its other four segments during the previous quarter. Those gains helped the company report record quarterly net income of $2.9 billion.
Studio entertainment -- Disney's third-highest money-making segment behind media networks and parks and resorts -- experienced a 46% increase in revenue from the year-ago period, thanks in large part to the runaway success of the first iteration of the Star Wars franchise that the company purchased the rights to for $4 billion in 2012. Star Wars: The Force Awakens has gone on to gross more than $2 billion worldwide since its mid-December release.
Therein lies Disney's attractiveness. 'Content is King' for media companies like Disney, according to Trifecta Stocks co-portfolio manager and Tematica Research CIO Chris Versace.
"With Disney's latest release, Marvel's "Captain America: Civil War" crushing the box office and more high-profile films coming, including Pixar's "Finding Dory", Marvel's "Doctor Strange" and "Star Wars: Rogue One," we expect the company to be rather upbeat when discussing prospects for the Studio Entertainment business," Versace, who co-authored the book Cocktail Investing, said of Disney's film segment.
Investors will also be watching Disney's theme parks segment. While the previous quarter does not represent the peak season for the division and the company's largest themepark in Shanghai isn't scheduled to open until June 16, it did represent nearly 30% of Disney's revenue in the previous quarter.
"While we are still a few weeks away from the unveiling of "Frozen"-related attractions at Disney's parks, revenue for that segment will have benefitted from Easter and related spring break vacation falling late in the March quarter," Versace wrote in a Trifecta Stocks alert today. "On the earnings call we expect management will indeed talk up both new attractions, like the aforementioned Frozen and eventual Star Wars and Marvel ones that will continue to drive both new and repeat visits."
Despite a record first-quarter performance, Disney's stock hit a year-to-date low of $88.85 on Feb. 11 following its earnings release. Which brings us back to ESPN and its media networks division. While the overall strength of Disney is apparent, Wall Street continues to be concerned about the company's largest money maker.
"The one elephant in the room when it comes to Disney, and as much as we like Dumbo we don't mean him, is ESPN, which is a part of the company's Media Networks business. Cable operators have re-addressed their skinny bundles, but given recent comments from Viacom (VIA) over ad softness, we suspect Disney will be discussing how it aims to reposition the business as well as improve profits," Versace said.
The effects of cord-cutting on the company's bottom line was the focal point of the bear calls following the Disney's first-quarter release, as the company's ESPN network felt the brunt of cable subscribers opting the channel out of their cable packages. Additionally, Disney's major broadcast network, ABC, saw rating decline about 15% this quarter, according to Piper Jaffray analyst Stan Meyers.
This afternoon, and beyond, investors will once again have to ask themselves whether the weakness of the biggest link in the Disney chain is enough to ignore all of the positives the company brings to the table.
