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Expectations for Disney Earnings


After diversifying its business, Disney has five major business segments.

MINYANVILLE ORIGINAL Disney (DIS) will be announcing earnings after the bell today with a conference call scheduled for 5 p.m. ET. EPS is expected to come in at $0.93, with analyst estimates ranging between $0.85 and $0.98. Revenue is expected to be in the $10.78 billion to $11.67 billion range.

After diversifying its business, Disney has five major business segments within its diversified network: amusement parks and resorts, media networks, studio entertainment, interactive media, and consumer products. The parks and resorts business includes the major theme parks in Florida and California, along with management of operations at the foreign parks in Paris, Hong Kong, and Tokyo.

The media network hosts major TV stations like ABC and ESPN, which are two of the country's largest markets, as well as ESPN Radio and Radio Disney. Studio entertainment produces and distributes films under the names of Pixar, Walt Disney Pictures, Touchstone Pictures, and Dimension. This segment recently produced The Avengers, a worldwide hit with nearly $1.5 billion in revenue. In addition to the smash hit The Avengers, Disney should also be doing well due to increased ad revenue from the NBA playoffs and its affiliated programming.

With the John Carter disaster behind the company, Disney should be over the loss and can look forward to strong sales from Nemo 3D in the fall and Iron Man 3 next spring. Finally, Disney's interactive media and consumer products sections comprise Disney's licensed gaming network and the sale of royalties and other products worldwide.

In Q1 2012, 46% of revenue came from media networks, 30% came from parks and resorts, 12% came from studios, 7% came from consumer goods, and the remaining 2% came from the interactive media division. Profit margin was driven lower by the movie John Carter. Disney wanted this film to be a major tent pole franchise, but it was critically panned by critics and moviegoers, resulting in a massive box office flop.

In contrast to John Carter's flop, major profit drivers this quarter should be the revenue from The Avengers, the top grossing film of the year; higher ad revenues from EPSN and ABC with the ratings success of the NBA Finals; and increased revenue from cable and satellite companies like Comcast. Disney should also receive a boost from the dispute between Viacom (VIA) and its major rival, Nickelodeon, after Viacom blocked Nickelodeon from the air for nearly a month, allowing Disney to gain key market share.

Disney has gained following earnings three times out of the last six earnings, topping EPS expectations five out of the last six quarters. The two times that Disney failed to beat revenue, it beat EPS once and posted positive growth year-over-year in the other quarter. Disney does not release guidance estimates.

Click to enlarge

The above chart shows the Disney long bullish channel that has been in existence since October 2011, and that channel has yet to break to the downside. Disney is trading above the 20-, 50-, 100-, 150-, and 200-day moving averages, which shows that the strength should continue, and all dips should be bought.

Possible Trades:

Buying the Disney 50 Calls for $1.00
Risk: $100 per 1 lot
Reward: Unlimited
Notes: Good risk vs. reward, but do not want to be buying on the top of a bullish channel.

Selling the Disney August 48-47 Put Spread for $.17
Risk: $83 per 1 lot
Reward: $17 per 1 lot
Notes: Not a good enough payout that Disney does not break the $48; do not want to be risking $83 to make $17 into any earnings.

Buying the Disney Aug 50 straddle for $2.06 (my trade)
Risk: $206 per 1 lot
Reward: Unlimited
Notes: I make money as long as Disney moves 4.2%, which is in line with the last four quarters.

The below chart shows my trade, risk, reward, and breakeven on the charts.

Click to enlarge
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