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3 ETFs to Watch on Mixed Time Warner and Disney Earnings

While media investors are worried about the falling rate of cable TV subscribers - a phenomenon known as cord cutting - largely attributed to the tug of war between streaming video content and TV channel bundle, the recent quarterly results from Time Warner Inc. ( TWX ) and The Walt Disney Company ( DIS ) offered some respite.

However, the long-term outlook for the media sector still remains uncertain, especially when Time Warner has lowered its 2016 outlook on concerns of subscriber losses apart from new investments. Below we take a glance into the quarterly results of these major media companies.

Time Warner Earnings in Detail

Time Warner posted adjusted earnings of $1.25 per share for third-quarter 2015 that surpassed the Zacks Consensus Estimate of $1.09 and rose 2.5% year over year on the back of strength in its Warner Bros. and Home Box Office ("HBO") businesses.

Total revenue came in at $6,564 million, up 5% year over year and ahead of the Zacks Consensus Estimate of $6,496 million. Notably, revenues from its Turner cable network declined 2% to $2,398 million on lower subscriber base, lower advertising revenues and a fall in content and other revenues. Meanwhile, revenues from its HBO segment rose 5% to $1,367 million on account of higher domestic subscriber rate and higher content and other revenues.

The company continues to expect adjusted earnings per share between $4.60 and $4.70 for 2015. However, it reduced 2016 adjusted earnings guidance to $5.25 per share from the prior outlook of around $6 per share. Due to these, shares of the company nosedived 10.9% since its earnings release on November 4 before the opening bell (as of November 6, 2015).

Walt Disney Earnings in Detail

Walt Disney Company posted fourth-quarter fiscal 2015 earnings per share of $1.20, which rose 34.8% year over year and beat the Zacks Consensus Estimate of $1.17, marking the ninth consecutive quarter of an earnings beat.

However, in spite of growing 9% year over year, the company's revenues of $13,512 million fell short of the Zacks Consensus Estimate of $13,561 million, making it two misses in a row. The increase in revenues was attributable to higher revenues from Media Networks, Parks and Resorts and Consumer Products.

The company believes a lack of favorable hedges against forex volatility will hurt its fiscal 2016 operating income by $500 million. Further, the company's capex for fiscal 2016 is expected to be up roughly $800 million year over year owing to the building of new parks and resorts. Investor sentiment was positive following the release with shares of the company scaling up 2.4%.

ETFs to Watch

The mixed movement in the above mentioned media stocks is expected to impact consumer discretionary ETFs having high allocations to them. It is a matter of dispute at this moment about how far the cable TV weakness will spill into the future. Investors therefore should closely monitor the movement of these funds in the near term (see all Consumer Discretionary ETFs here).

Notably though, the media companies are a part of the consumer discretionary sector that has been doing well driven by low energy prices, higher consumer confidence, recovering U.S. economy and another holiday season around the corner. Thus, the overall impact of the media stocks on these funds might not be all that adverse. Below we highlight three of these funds (read: 4 Solid Reasons to Buy Consumer Discretionary ETFs ).

Consumer Discretionary Select Sector SPDR Fund ( XLY )

With an asset base of $11.7 billion, XLY is the largest and most popular ETF in its space. Holding 88 shares in its basket, Walt Disney and Time Warner have a combined exposure of 9.6% in the fund. From a sector look, Media takes the top spot with 24.6% of assets, followed by Specialty Retail (20.4%). The product trades in a solid volume of 6.5 million shares per day and charges 15 bps in fees. XLY has returned 12.8% in the year-to-date view (as of November 6, 2015) and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Consumer Discretionary ETF (XLY) Hits New 52-Week High ).

MSCI Consumer Discretionary Index ETF ( FDIS )

This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding a large basket of 386 consumer discretionary equities in the U.S. Walt Disney and Time Warner together account for 7.8% of the fund's assets. From a sector perspective, Media takes the top spot in the fund with 24.3% of assets, followed by Specialty Retail (19.2%). The product has amassed $299 million in its asset base and trades in a moderate volume of nearly 135,000 shares per day. It is very cheap in its category with only 12 bps in annual fees. FDIS gained 9.4% so far this year and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Vanguard Consumer Discretionary ETF ( VCR )

This ETF follows the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index, holding a large basket of 384 stocks. Walt Disney and Time Warner have a combined exposure of 7.7% in the fund. As far as sector allocation is concerned, Internet Retail take the take spot in the fund (11.9%) followed by Restaurants (10.6%), Movies & Entertainment (10.5%) and Cable & Satellite (10.1%). The product has managed to accumulate roughly $2.2 billion in its asset base so far and trades in a moderate volume of nearly 153,000 shares per day. It is also very cheap with 12 bps in annual fees. VCR was up 9.4% since the start of the year and currently sports a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Does This New Consumer Discretionary ETF Look Promising? ).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>

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TIME WARNER INC (TWX): Free Stock Analysis Report

DISNEY WALT (DIS): Free Stock Analysis Report

SPDR-CONS DISCR (XLY): ETF Research Reports

FID-CON DIS (FDIS): ETF Research Reports

VIPERS-CONS DIS (VCR): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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