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Disney crashes post Q2; ETFs to watch

The largest global media and entertainment company, The Walt Disney Company (DIS) managed to beat the Zacks Consensus Estimate for Q3 earnings but failed to match the revenue estimate. Moreover, management raised concerns about the future because of the continuing shifts within the television industry.

For example, loss of subscribers at the esteemed sports channel ESPN will likely reduce Cable Network’s affiliate revenues. Plus, management indicated that the dearth of hedges at favorable rates to counter negative currency translation will hurt fiscal 2016 operating income by $500 million.

The combined forces of hedging inability and lower affiliate revenues will cut down the unit’s operating income growth during the fiscal 2013 to fiscal 2016 period to mid-single digits from high single-digit range guided previously.

This subtle incapability was enough to drag down the Disney stock from an almost all-time high that it was trading around prior to the earnings release on August 4, after the bell. The stock lost about 9.2% in the key trading session of August 5. Per CNNMoney, this was “the stock's worst single-day performance in almost four years.”

Results in Detail

Earnings per share came in at $1.45 per share, up 13% year over year and ahead of the Zacks Consensus Estimate of $1.39. This represented eighth successive quarter of earnings beat.  Revenues rose 5% year over year to $13.10 billion, but fell shy of the Zacks Consensus Estimate of $13.17 billion. The tremendous success of Avengers: Age of Ultron, Cinderella and Inside Out largely made up for the weakness in the television division.

Market Impact

The Disney sell-off acted as a cornerstone for the entire media sector. CNNMoney noted that apprehensions over subscriber loss probably cast a dark cloud over the entire media space as Time Warner (TWX) was off about 9%, Viacom Inc. (VIAB) lost over 7.5%, Twenty-First Century Fox Inc. (FOX) retreated over 6.7% and Comcast (CMCSA) shed about 4.7% (as pointed out by CNNMoney).

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