Tuesday, May 5, 2020

Will Walt Disney’s Results Entertain Investors?

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What’s happening: Walt Disney Co is scheduled to report its second-quarter results after the closing bell on Tuesday, May 5.

What happened: The coronavirus pandemic has proved to be a major headwind for the Burbank, California-based company, which is mostly dependant on in-person experience for its growth.

Walt Disney’s stock, which was trading at all-time high levels before the coronavirus outbreak, has declined sharply over the past three months. The entertainment sector has taken a massive hit with social distancing norms being followed by harsher restrictions and lockdowns. Movie theaters and theme parks are closed, and these will probably be the last businesses to be opened even when lockdown restrictions are relaxed. Investors are concerned not just about Walt Disney’s financials, but about its very survival.

Despite this gloom, there is one shining star for the company, which is performing way ahead of expectations.

Expectations for the quarter: Walt Disney is expected to report revenue growth for the latest quarter, while earnings are likely to have steeply declined.

  • The consensus revenue estimate stands at $17.49 billion, representing 17.2% growth versus the same quarter last year.
  • The company is expected to report earnings of 90 cents per share, down 44.1% from the year-ago quarter.

Why it matters: Disney’s media networks have been among the top performers for the company, representing around 35% of overall revenue and almost 50% of earnings last year. However, the segment, which includes cable networks and sports network ESPN, is struggling in the current crisis as most sporting events scheduled for 2020 have been postponed or canceled. ESPN has been broadcasting older games and documentaries, with nothing new to air.

Disney’s studio entertainment, parks, and products segments are the hardest hit by the COVID-19 outbreak. These segments, which accounted for more than 50% of overall revenue last year, are gathering dust as theme parks are closed, cruises are docked, and movie theaters are shut and movie production has come to a complete halt.

If there is one thing that is really working for the company, it’s the Disney+ streaming service. Walt Disney had announced last month that this service had exceeded 50 million subscribers.

Disney had earlier projected its worldwide subscribers at 60-90 million by the end of 2024. The segment is performing far better than these projections, with people staying at home.

Ahead of its earnings report, Walt Disney received a downgrade yesterday by MoffettNathanson, which cut its rating for the company from Buy to Neutral.

How the shares have performed so far: Investors seem cautious heading into the company’s quarterly release, with Disney’s shares down around 3% over the past five days and falling 2.2% in Monday’s session. The company’s stock has plunged around 29% over the past three months.

What to watch: With lockdowns around the world, investors will be focusing on growth in subscriber base and profitability at the Disney+ service. Investors also await comments from management around the coronavirus impact on the company’s overall business and whether any outlook will be issued for this quarter and year.

The Markets Today

     

Investors will be keeping a close eye on European stocks today, ahead of the release of the report on producer prices.

Context: European stocks started the month on a downbeat note, as investors reacted to growing trade tensions between the US and China. Markets in Europe were closed Friday for the Labor Day holiday

Details: US President Donald Trump threatened to impose new tariffs or take some other actions against China in response to the way the country has handled the coronavirus outbreak. Any new tariffs or sanctions imposed will cause further damage to an already crippled global economy.

European countries released disappointing data on Monday, reflecting the negative impact of the coronavirus-related lockdowns to the economy. Italy’s manufacturing PMI slumped to a record low of 31.1 last month, while Spain’s manufacturing PMI plunged to a reading of 30.8. The IHS Markit’s manufacturing PMI for the Eurozone tumbled to 33.4 in April, from the previous month’s 44.5 reading.

The European Stoxx 600 index tumbled 2.65% on Monday, with all sectors closing in negative territory. The oil and gas sector was the worst performer, declining around 5%.

Thyssenkrupp’s shares tumbled 14% after the German company warned that the coronavirus pandemic could result in a new cash squeeze situation, despite the sale of its elevator business. Meanwhile, Swiss company Lonza saw its shares climb 3% after it announced plans to manufacture Moderna’s COVID-19 vaccine.

The German 30 fell 3.64% on Monday, while the French 40 declined 4.24% and the FTSE MIB closed lower by 3.70%.

What to watch: Investors continue to monitor the daily coronavirus figures, with the total number of cases exceeding 3,582,460 globally. The number of positive COVID-19 cases in Spain has surpassed 218,010 with around 25,420 deaths, while cases in Italy have exceeded 211,930 with 29,070 fatalities.

The markets await manufacturing producer prices from the Eurozone and various other reports from several European countries. Eurozone’s industrial producer prices, which fell 0.6% in February, are expected to decline 1.3% in March.

Other Markets: US indices closed higher on Monday, with the Dow, S&P 500 and Nasdaq 100 down by 0.11%, 0.42% and 1.23%, respectively.

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Futures at 0400 (GMT)

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What else to watch today

     

France's government budget value, Spain’s unemployment change and consumer confidence indicator, UK’s new car registrations, services PMI and composite PMI, Brazil's industrial production, Canada’s balance of trade as well as the US Redbook index, balance of trade, services PMI, ISM non-manufacturing PMI, IBD/TIPP economic optimism index and API crude oil stock change.