Wednesday, August 5, 2020

Disney Entertains Investors, Despite Q3 Revenue Miss

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What’s happening: Shares of Walt Disney Company rose in extended trading on Tuesday despite the entertainment giant reporting weaker-than-expected revenues for the third quarter.

What happened: Before the coronavirus outbreak, Disney’s parks, experiences and products unit had been the main driver of the company’s top- and bottom-line, generating almost half of its operating profits in 2019.

However, this highly lucrative segment witnessed the heaviest impact of the pandemic. Despite this, the company was able to report adjusted earnings (income excluding the impact of onetime expenses) ahead of expectations. Also, given the steep decline in revenues in the parks, experiences and products unit, Disney now relies on another segment for growth.

How were the results: The media giant reported a net loss for the third quarter, with a massive decline in revenues.

  • Sales contracted by a whopping 42% to $11.78 billion, versus a record $20.25 billion in the same quarter last year. The figure also missed analyst expectations of $12.4 billion.
  • Disney reported a loss of $2.61 per share, versus a net income of 79 cents per share in the year-ago quarter. The loss came on the back of a $4.95 billion impairment charge.
  • Adjusted earnings came in at 8 cents per share, versus the consensus view of a loss of 64 cents a share.

Why it matters: Disney's parks and cruise operations have been hammered by the pandemic. The company saw revenues at its Parks, Experiences and Products unit decline by 85% to $983 million in the third quarter.

Revenues at Media Networks dropped 2% to $6.56 billion, while Studio Entertainment revenues plummeted 55% to $1.74 billion.

The DTC segment was a bright spot, with direct-to-consumer and international revenues growing 2% to $3.97 billion in the latest quarter. Disney+ closed the latest quarter with 57.5 million subscribers.

CEO Bob Chapek said during the earnings call, “The global reach of our full portfolio of direct-to-consumer services now exceeds an astounding 100 million paid subscriptions - a significant milestone and a reaffirmation of our DTC strategy, which we view as key to the future growth of our company.”

Disney also said it will skip the theatrical release of its most-anticipated movie “Mulan” in several parts of the world. Instead, the company will stream the movie directly through its Disney+ platform in September.

The announcement come on the heels of uncertainty surrounding the pandemic, which may result in further delays in the reopening of movie theater chains in the US.

How shares responded: Shares of Disney climbed 4.5% to $122.60 in extended trading on Tuesday following an initial decline of 2%. The company’s stock is down 19% year to date, underperforming the S&P 500, which has gained 2% in the same period.

What to watch: Disney is expected to see a spike in subscriber numbers in the weeks leading to the release of Mulan on its streaming platform. The company’s overall business might also make a gradual rebound with the relaxation of restrictions in some parts of the world.

The Markets Today

     

Crude oil will be in focus today, ahead of the EIA’s (Energy Information Administration) data on crude stockpiles scheduled for release later in the day.

Context: Crude oil closed higher on Tuesday, reversing earlier losses. Prices started climbing after the US reported less than 50,000 daily covid-19 cases for the second day.

Details: Although the global tally of covid-19 cases surged past 18.3 million on Tuesday, the number of new cases in the US remained below 50,000 for the second consecutive day, with some of the worst-hit states witnessing a slowdown in the number of infections.

Meanwhile, the relaxation of output curbs by the OPEC+ group continue to keep investors on edge.

After falling to as low as $40.14 per barrel earlier in the session, WTI (West Texas Intermediate) crude for September delivery gained 1.7% to settle at $41.70 per barrel on the NYMEX (New York Mercantile Exchange). October Brent crude rose 0.6% to close at $44.43 per barrel on ICE Futures Europe.

Last week, US crude inventories declined by the steepest rate this year, dropping 10.6 million barrels in the week, according to the EIA.

The API (American Petroleum Institute) late Tuesday reported that US crude stockpiles had declined by 8.6 million barrels in the latest week.

After surging by a record 16% on Monday, September natural gas futures gained 4.4% to settle at $2.193 per million British thermal units, recording highest settlement since January 10.

What to watch: Investors await the EIA’s report on crude inventories, which are expected to have declined 4.1 million barrels last week. Analysts expect gasoline stockpiles to drop 1.3 million barrels, while distillate supplies are projected to increase 100,000 barrels.

Investors will continue to monitor the covid-19 figures, with the total number of cases surpassing 18.4 million globally.

Other Markets: US indices trading closed higher on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.62%, 0.36% and 0.35%, respectively.

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Futures at 0400 (GMT)

What else to watch today

     

Russia’s services PMI, South Africa’s Standard Bank PMI, Spain’s services PMI and consumer confidence indicator, Italy’s services PMI, French retail sales, services PMI and composite PMI, Germany’s services PMI and composite PMI, Eurozone’s services PMI, composite PMI and retail trade, the UK’s new car registrations, services PMI and composite PMI, Canada’s balance of trade, Brazil’s services PMI and composite PMI, Argentina’s industrial production as well as the US MBA mortgage applications, ADP employment, balance of trade, services PMI, composite PMI and ISM non-manufacturing PMI.