Monday, May 12, 2014

The Walt Disney Company (DIS) Q2 Earnings Preview: Frozen on Bullish Surprises

The Walt Disney Company (NYSE:DIS) will release fiscal second quarter 2014 earnings at approximately 4:15 p.m. EDT / 1:15 p.m. PDT on Tuesday, May 6, 2014. Management will discuss financial results via a live audio Webcast beginning at 5:00 p.m. EDT / 2:00 p.m. PDT.

Wall Street anticipates that entertainment company will earn $0.96 per share for the quarter, which is $0.17 more than last year's profit of $0.79 per share. iStock expects Disney to top Wall Street's consensus number. The iEstimate is $0.99, can't they find another penny to make it a buck.

Sales, like earnings, are expected to increase, rising a respectable 6.5% year-over-year (YoY). Disney's consensus revenue estimate for Q2 is $11.24 billion, more than last year's $10.55 billion.

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The Walt Disney Company operates as an entertainment company worldwide. The company operates in five segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products, and Interactive. Its cable networks include ESPN, Disney Channels Worldwide, ABC Family, and SOAPnet, as well as UTV/Bindass. Of course, there are the theme parks and characters like Mickey and Minnie Mouse, and movies like the hit Frozen.

And Frozen could be a big reason why DIS does better than expected. The movie is still top 40 and has grossed $400,328,936 in the US and more than a billion bucks globally, making it the top-grossing animated film of all-time. It's only gotten crazier since the March release of the DVD.

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How crazy to you ask? The New York Post reports that Frozen merchandise available in Disney Stores was sold out. In fact, "Since the movie's release on DVD in March, "Frozen" merchandise has been selling so fast, Disney had to institute a two-item limit on all goods last Wednesday (not that there's anything to buy)."

Along with Frozen, Captain America: The Winter Soldier is another box-office hit, grossing $237,155,480 in the US since its release. No word on mommies throwing punches over Captain America action figures.

Clearly, the Studio Entertainment segment is providing a strong tailwind for DIS heading into Q2 release.

ESPN has been another juggernaut for the iconic brand. According to Wells Fargo analyst, Marci Ryvicker, the Media Networks division's revenue is expected to increase 4% to $5.16 billion, driven by a slight uptick in ESPN's ratings. However, Q3 guidance for the division could be difficult as ratings for the Masters golf tournament suffered badly with Tiger Woods sidelined.

Meanwhile, it has been reported that the Disney theme parks are doing better YoY as they benefit from a modestly improving economy – at least one that's not crashing.

Overall: The major parts of The Walt Disney Company's (DIS) are trending in the right direction for an EPS surprise as the iEstimate suggests. Ahh, but that ain't no big deal as DIS topped Wall Street's expectations eight of the last 10 quarters with two on-target results in the mix.

Despite the track record of strong bottom line results, Wall Street's reaction has been muted, averaging a gain of just 0.86% in the three days surrounding the news. The range of returns has been from a loss of -6.4% to a gain of 6.5%. 

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