Walt Disney: Color on Quarter
- FBR & Co lowers tgt to $101 from $110. Star Wars crushed it, driving big upside, with the studio hitting our outlier-high estimate of $1B in segment profit. Of course, in this tape, seemingly no investor cares, with the stock indicating down, after hours, on slow affiliate fee growth at ESPN. Still, they see investors as focusing on a tiny pimple to miss a pretty face. New disclosures suggest that stronger-than-expected retransmission/reverse fees for ABC are nearly completely offsetting slower ESPN affiliates. Additionally, Disney sees signs that the modest sub-loss pressures at ESPN are reversing, thanks, at least in part, to uptake of DISH's Sling, supporting what they have argued all along-that online potential for Disney networks is a great offset to the risk to the pay TV bundle.
- Topeka lowers tgt to $130 from $131. Media Netowrks EBIT result missed their projection of $1.60B, due primarily to an increase in sports rights.Theme Parks margins were a new record, studio EBIT at $1 bln was also a record. They still feel comfortable with the overall shape of their F2017 view, although they are modifying F2017 EPS down by $0.05/share simply to account for higher P&A on the film slate.
- Needham notes that although shares traded down in the after-market as investors focused on ESPN weakness, the strategy, execution and mgmt team excellence was on full display as DIS reported record results in film, parks and consumer products thanks to Star Wars. Mgmt forecast that ESPN would be a positive contributor to Operating Income growth going forward, although the Q&A session indicated that analysts were skeptical of this claim. They maintain their Hold rating as they believe DIS is pivoting toward content creation that targets boys (rather than girls) and 20-45 year olds (rather than 10-17 year olds), both of which have far more competition and muddy DIS's historical brand value.