Factors Likely to Influence Disney (DIS) in Q2 Earnings

Disney DIS is slated to report second-quarter fiscal 2019 results on May 8.

Notably, the company’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed estimates in the remaining quarter, the average positive surprise being 8.66%.

In first-quarter fiscal 2019, adjusted earnings of $1.84 per share comfortably beat the Zacks Consensus Estimate of $1.57 but declined 2.6% from the year-ago quarter. Revenues of $15.30 billion almost remained flat from the year-ago quarter but surpassed the consensus mark of $15.18 billion.

The Zacks Consensus Estimate for second-quarter fiscal 2019 earnings has increased 0.6% over the past seven days to $1.59 per share. However, the figure indicates decline of 13.6% from the year-ago reported figure. The consensus mark for revenues, which is pegged at $14.64 billion, indicates growth of 0.7% from the year-ago period reported figure.

Let’s see how things are shaping up for this announcement.

The Walt Disney Company Price and EPS Surprise

The Walt Disney Company Price and EPS Surprise | The Walt Disney Company Quote

Lower Profits to Hurt the Bottom Line

Disney’s second-quarter fiscal 2019 results are likely to take a hit owing to its investments and lack of major releases.

The company noted that ongoing investments in direct-to-consumer (DTC) businesses will have a negative impact on DTC's segment results. Additionally, second-quarter fiscal 2019 operating income will bear a negative impact of $200 million due to the abovementioned investments. This is expected to hurt profits in the to-be-reported quarter.

Moreover, the company’s theatrical and home entertainment business operating income is expected to be lower than the year-ago quarter’s figure due to unfavorable comparison. Notably, Black Panther had contributed significantly to second-quarter fiscal 2018 results. Management expects the segment’s operating income in the range of $450-$500 million in the to-be-reported quarter.

Parks, Experiences & Consumer Products operating income is also expected to be about $80 million lower due to the adoption of a new revenue standard. Notably, about $45 million of second-quarter fiscal 2019 operating income is expected to shift to third-quarter fiscal 2019 due to the timing of the Easter holiday period.

Further, broadcasting operating income is expected to witness a negative impact of approximately $85 million in second-quarter fiscal 2019 due to difficult program sales comparison on a year-over-year basis.

Also, Disney’s Studio Entertainment segment’s profitability may be lower as Dumbo’s pre-release marketing expense will be reflected in second-quarter fiscal 2019 results. However, the film’s box-office contribution will be lower in the to-be-reported quarter as it was released toward the end of second-quarter fiscal 2019.

Captain Marvel, ESPN+ Performance May Aid Results

Solid performance of Captain Marvel may aid second-quarter fiscal 2019 results. The film was the third-highest domestic release of all times in the month of March and the seventh highest Marvel Cinematic Universe (MCU) debut film. Additionally, Captain Marvel was the “second-highest grossing superhero origin film” after Black Panther, which collected $202 million on its debut.

In the international markets, the film became the fifth-highest debut of all times and the second-highest superhero film after Avengers: Infinity War.

Disney’s strong sports content slate is expected to boost its subscriber base on its sports DTC platform – ESPN+ in second-quarter fiscal 2019. Notably, the company had 2 million paid subscribers in first-quarter fiscal 2019.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP.  Zacks Rank #4 (Sell) or 5 (Strong Sell) are best avoided.

Disney has a Zacks Rank #4 and an Earnings ESP of +2.31%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some companies, which, per our model, have the right combination of elements to post earnings beat this quarter:

Electronic Arts Inc. EA has an Earnings ESP of +16.29% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Rent-A-Center, Inc. RCII has an Earnings ESP of +21.98% and a Zacks Rank #1.

SeaWorld Entertainment, Inc. SEAS has an Earnings ESP of +16.13% and a Zacks Rank #2.

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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.

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