Disney Misses Q2 Earnings Forecast

Walt Disney Resort

The drop in revenue was attributed to the company’s media network unit.

Walt Disney Co. posted earnings in the second quarter that missed Wall Street estimates as its shares went down 5% Tuesday.

The media giant’s earnings for its performance with Star Wars and Disney resorts, which increased by 2%, helped counter flat earnings for its television outlets. Analysts polled by S&P Global Market Intelligence estimated earnings per share after adjustments to be at $1.40, but the company only managed $1.36.

Revenue also missed estimates at $12.97 billion against analysts’ estimates of $13.2 billion.

Disney’s shares fell to $100.90 down 5.4% in after-hours trading as the company posted its results at the end of the day. Regular trading pushed up the stock to $106.60 rising by 1.2%.

Disney’s failure to meet expectations prompted analysts to cite several factors. According to Barclays, Disney’s network segments, including ESPN, and the company’s consumer products failed to keep up performance expectations.

Analysts Kannan Venkateshwar, Shelley Yang and Divyaunsh Divatia wrote to investors, “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.”

The media networks unit, which includes ABC, ESPN and several other TV networks that comprise the company’s largest division pulled in $5.8 billion in revenue. Cable network revenues went down 2% to $4 billion with operating income increasing by 12% from ESPN’s higher affiliate fees from pay-TV companies.

ESPN, however, has not improved ratings, deriving its revenues from increasing rates. The network’s subscriber base declined a second straight year in the quarter’s reports causing investor concerns. These problems contributed to last year’s decrease in stock prices. Disney chairman and CEO Robert Iger said that ratings are turning around after last quarter. The network’s row with Verizon’s TV bundling program that excluded ESPN from its base package is also finished.

ESPN’s decline in programming costs were due to the network’s choice to air only one college football playoff in the quarter as opposed to the seven they aired a year ago despite an increase in demand for live sports coverages, which decreased its ad sales. Live programming contributed to its high programming costs. Higher advertising sales boosted broadcasting revenue to $1.8 billion up 3%.

Disney is opening the Shanghai Disney Resort on June 16, which will be part of the parks and resorts unit that posted a 4% increase in revenue to $3.9 billion. Operating income increased 10% due to an increase in ticket prices and higher consumer spending on food, beverages and merchandise. On Tuesday, Iger said that the Shanghai Disney Resort is “authentically Disney and distinctly Chinese.” He added, “We have a very optimistic outlook (for the resort).”

The studio entertainment unit’s revenues increased 22% up to $2.1 billion. The unit is still enjoying the profits from the December mega-blockbuster Star Wars: The Force Awakens, and the movie Zootopia released this quarter that sold $930 million in the box office.

Consumer products and interactive media units suffered a 2% decline to $1.2 billion due to the slowdown of Frozen merchandise sales.

“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. “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.”

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