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Avoid DIS After Disappointing Q4 Earnings

Feb 11, 2018


The Walt Disney Company (DIS) released mixed fourth-quarter earnings on Tuesday afternoon, beating the Street on the bottom line but reporting revenue that was quite disappointing.

Earnings came in at $1.89 a share, increasing 22% year-over-year and besting analysts’ estimates by $0.28. Revenue grew 3.8% to $15.35 billion, which missed expectations by $100 million. That’s not awful on the surface, but when you strip the company’s theme parks and resorts segment out of the equation, year-over-year revenue growth was actually negative.

The parks and resorts segment brought in just under $5.2 billion in the fourth quarter, representing an increase of 13% over the previous year, and it accounted for a third of DIS’ total revenue, which hasn’t happened in years. But not only was the segment the only one to grow both revenue and operating income in the quarter, it was also the only business to show growth at all in 2017.

Media networks, Disney’s largest segment by revenue, was flat with sales of $6.24 billion; studio entertainment was down 1% to $2.5 billion and consumer products and interactive media fell 2% to $1.45 billion.

Growth Stalls Out

That growth – or lack thereof – is my main concern here. The theme parks and resorts segment is the only part of DIS’ business that is growing at all right now. And to make matters worse, the segment had a really easy comparison after reporting an ugly number last year.

In the future, DIS isn’t going to be so lucky, and unless it starts to grow soon the stock will have trouble holding above $100 (the black line) – an area that has acted as both support and resistance in recent months.

Disney’s one saving grace is the fact that it’s trading with a forward P/E of 15.1, and it also offers a decent 1.5% dividend yield. However, with the market in a period when the best will outperform and the laggards will continue to struggle, our focus has to be on companies that boast solid growth on both the top and bottom lines. Because DIS is missing half of that equation, I am staying away.

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