Disney in serious trouble as they miss earnings projections for the second time in the last three quarters

Disney CEO Bob Iger missed earnings projections for the second time in the last three quarters this year alone
The big news of the day is that executives disclosed that Disney missed big time in its fourth quarterly earnings at the closing bell of today's trading, sending the price of Disney stock plummeting in after-hours trading.

Disney stocks again plummeted in after-hours trading on disappointing news
that they fell short of expectations again for their quarterly earnings call
The global media-entertainment conglomerate posted earnings of only $1.10 per share on $13.1 billion in revenues for its fiscal fourth quarter, missing consensus Wall Street estimates of $1.16 per share on $13.5 billion in revenue.

Even worse, profits were down in all business segments and earnings per share were down about 10 cents less than $1.20 per share from a year ago, suggesting Wall Street consensus expectations already factored in earnings to be significantly lower from a year ago.

But even with this major concession, Disney could not hit its marks with lowered expectations from Wall Street, which is very concerning.

Revenues slid dramatically by 3 percent from a year ago, and the reaction on Wall Street was almost immediate as the stock price plummeted nearly 3 percent in after hours trading. (See DIS stock price on the graph above.)


Disney and a lot of media outlets have been trying to spin the bad news as some sort of anomaly, being only the second time in the last five years (or 20 fiscal quarters) that Disney has missed Wall Street projections, but in truth, the news is far worse than it is being portrayed by the news media and the House of Mouse.

Disney Chairman and CEO Bob Iger seemed delusional on the earnings call, taking
pride on the disappointing results today
It's actually the second time in only the last three quarters that Disney missed its quarterly financial projections this year alone, showing that this is a very worrisome trend rather than a outlying blip on the radar.

Earnings also fell short on the second fiscal quarter of this year and barely eked out an anemic penny per share earnings above expectations in the third quarter of this year, thanks to an unusual windfall from the movie studios division that overshadowed widespread disappointing results from all its other sagging business segments.

But any way you look at it, the last three fiscal quarters in a row have been off for the Empire of Mouse, indicating a very disturbing trend that cannot be ignored or dismissed.

Disney's disappointing earnings call today was not unexpected as A.C. Nielsen recently disclosed that Disney's biggest cash cow, the all-sports giant ESPN, lost more than 621,000 subscribers in just the month of October alone.


Since its peak of 99 million subscribers in 2013, ESPN has lost more than 10 million subscribers with plenty more subscribers expected to "cut the cord" to their expensive cable-bundle subscription packages in the foreseeable future.

Cord-cutters and cord-shavers continue to hound ESPN as the all-sports network
loses more than 610,000 subscribers in one month alone
Disney fiercely disputed the data—even calling for Nielsen to re-evaluate its numbers—but the TV ratings service stood by its numbers and methodology, suggesting that the phenomena of cord-cutting is dramatically accelerating as time goes on.

Disney executives then tried to explain away the alarming number of recent cable subscribers jumping ship from their traditional cable subscriptions as some sort of "anomaly," but no one expects the negative numbers of pay-TV viewers dumping their cable subscriptions to turn around anytime soon, if at all.

In line with these numbers, ESPN's revenues fell seven percent to $3.95 billion and operating income dropped even more dramatically by more than 13 percent or $207 million to $1.4 billion as advertisement and affiliate revenues were lower in the quarter while the network paid out a lot more money to secure future broadcasting rights to televise Olympics programming, NHL hockey, and college sports.


In addition to that bad news, ratings for NFL football, especially Monday Night Football, have been down significantly this year impacting advertisement rates the cable channel could charge.

Disney is one of—if not—the worst performing stocks on the Dow Industrial
Average this year
The problem of subscriber losses at ESPN has been so disturbing of late that Liberty Media Chairman, John Malone, even mused that Disney could spin off ESPN to protect its own interests and make the House of Mouse more palatable for a take over bid from larger tech companies like Apple, Alphabet (i.e., Google) or Facebook.

That kind of previously unthinkable merger for Disney may be necessary in the near future since the recent announcement of AT&T's acquisition of Time-Warner would dwarf The Walt Disney Company in terms of resources to be able to compete against a combined AT&T-Time-Warner tech-media conglomerate.

Disney's largest revenue generating and most profitable division, media networks (of which ABC Networks and ESPN are parts of), also saw its revenues fall more than 3 percent from a year ago to $5.66 billion.

Far worse, operating income for Disney's largest segment dropped more than 8 percent to $1.7 billion as sagging ratings at ABC TV and cord-cutting from ESPN seem have tag-teamed to take their toll on Disney's top and bottom lines. Media networks, which is Disney's largest business segment, contributes roughly half of Disney's total profits. Of those profits from media networks, ESPN alone contributes more than half of media networks segment's operating income.


However, the media network's sales numbers were in line with Wall Street expectations, which were factored into the earnings forecast, suggesting that this was not the real reason for Disney falling dramatically short of Wall Street analysts' forecasts this quarter.

A spoonful of Trexit helps the medicine go down, America!
Revenues in the parks and resorts segment only rose an anemic one percent to $4.39 billion from a year ago, despite having a new gigantic theme park in Shanghai, China contributing to the segment's top line this year that they didn't have last year, but this number appears to disguise how badly Disney's other theme parks and resorts had done this quarter.

The bottom line for theme parks and resorts, profits, was down an amazing 5 percent this quarter, from the same period last year.

Even worse, Attendance at all Disney theme parks fell significantly year-over-year this quarter by an amazing 10 percent, which is far worse than previous trends and has been going on for more than a few consecutive quarters. Even in Disney's U.S. theme parks, attendance fell by 10 percent according to the Orlando Sentinel.

Disney claims those key numbers were down due to having an extra week of operations last year, but that merely sounds like a convenient excuse given that they have a whole new theme park in Shanghai, China that they didn't have last year, offsetting the loss of a week of operations lost from last year.

The mad men did it!
Despite Shanghai Disney's addition, Disney could only muster one percent more revenue in the fourth quarter compared to the year before as their best and brightest metric from the segment. Clearly, Disney executives were manipulating the figures and cooking the books to cover-up just how badly theme parks and resorts did this quarter.


Disney executives admitted that attendance numbers at Disneyland California fared worse than at Disney World, but they did not disclose any hard numbers as the numbers at both domestic resorts seemed to be dismal, declining by a significant 10 percent dip.

Problems at Disney this quarter were across the board in all their segments, but
performance in theme parks and resorts were shockingly bad
Revenue was down more than 7 percent at Disneyland Paris—surprisingly 3 percent better than Disney's U.S. theme parks numbers—and fiscal year-end losses tallied to more than 705 million euros, which is nearly ten times higher than the previous year's losses at 84.2 million euros.

Attendance numbers inside Shanghai Disneyland have softened since its opening in June, according to media sources, adding to worries inside Disney.

We need not comment that these numbers for Disney's second largest revenue-generating segment fell well short of analysts' expectations, and seems to be the real reason why the company's broader earnings numbers fell well short of expectations today.


Studio entertainment revenues only rose two percent to $1.81 billion, which were in line with Wall Street expectations; however, operating income in the volatile movie studios segment was down 28 percent.


Disney has been relying on larger growth numbers from its volatile movie studio segment in recent quarters to make up for loses in all its other sagging segments and divisions, especially media networks, but that didn't happen for this quarter.


Recent flops, such as Pete's Dragon, Queen of Katwe, The BFG, and Alice Through Looking Glass, seemed to have finally tempered expectations in the studio entertainment segment's ability to make up for loses in other business segments with its mix of box office hits.


Disney's last segment, the consumer products and interactive media unit, reported a dismal 17% revenue decline to $1.3 billion, continuing its slide from previous quarters.


This may be the most revealing data thus far because the consumer products division reflects how well Disney's franchises are doing across the board in all its business segments.

The indications from the consumer products segment were simply horrendous in the last three quarters.

Disney Chairman and CEO, Bob Iger, reacted in a bewildering way to the disappointing numbers stating, "We're very pleased with our performance for the year, delivering the highest revenue, net income and earnings per share in Disney's history."

He further went on to brazenly declare that "the causes of those losses [in subscriptions at ESPN] has abated."

On the whole, these are all very dismal numbers given that the fear of Zika virus in Florida is still expected to impact Florida operations for years to come, and Disney has no solutions to the growing problems at ESPN and ABC networks.


Clearly, there is nothing to be "pleased" about today's results, but that didn't stop Bob Iger from shooting the breeze with misleadingly optimistic and vague claims about the state of affairs of Disney's financial futures today.


As DIS stocks began to precipitously plummet in after hours trading, Iger promised earnings growth for the next two years—based on what significant growth catalysts we don't know—which fooled enough naive investors to reverse the trend in after hours trading, but those promises will be most assuredly be reversed in the coming days as investors realize there is nothing in Disney's near or immediate future that will bring those empty promises to fruition.


Clearly, he is using the same pundits, statisticians and data experts that the press has relied upon to assure the public that Hillary Clinton had the presidential election in the bag. Today was a complete train-wreck for Disney. There is simply no way to talk your way out of this mess.


It still appears, from everything we see, that Disney's best days as a stand-alone, old-fashioned media company are behind them. It may be time for Disney to think about being absorbed by a larger tech company, such as Apple, Alphabet (i.e., Google), Facebook, or Microsoft, to stay relevant in the new digital landscape of today.


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