Disney Q1 woes: Profits drop 14% and revenues slide 3% as all business segments report declines in sales

Markets again react poorly to yet another earnings call miss at Disney
Disney had another big miss on its quarterly earnings report today, announced after the close of trading for the day, in its first fiscal quarter of the year that began in October and ended on December 31, 2016.

Revenues at the House of Mouse skidded more than 3 percent to $14.8 billion, missing the consensus Wall Street analysts' estimates of $15.3 billion.

The global media conglomerate reported lowered revenues that missed expectations in all four of its operating segments.

The company posted earnings per share of $1.55 that beat Wall Street's recently lowered expectations of $1.49 per share; however, both numbers were far below the $1.63 earnings per share and $15.24 billion in revenues posted during the same period last year.



The dismal quarterly results represents a 3 percent drop in revenues and a 14 percent drop in profits per share compared to a year ago.

Many experts believe a third earnings call miss in the last four quarters will
bring about a pullback of Disney stocks from investors
Despite the fact that the year-over-year declines were somewhat expected and factored into the lowered consensus estimates before Disney's first quarter earnings call, it still came as a shock to many investors, who had great hopes of Disney rebounding this coming year, that revenues fell way short of expectations again.

Over the past three months, shares of Disney have soared nearly 19%, benefiting from the strength of the general post-Presidential election stock market rally which elevated all the stocks on the Dow Jones Industrial Average. The Dow recently topped the 20,000 mark for the first time ever last week.

However, investors, feeding into this blind post-election market optimism, largely ignored the glaring weaknesses and warning signs of Disney's same old problems, especially with falling subscribers and viewership at their single most profitable division, ESPN.

After the earnings call announcement at the close of the trading day, shares of Disney immediately fell by more than 2.1% in after-hours trading to $106.71. This is the third earnings call miss for Disney in the last four quarters, suggesting that the company's best days may be behind them.



The two biggest problems areas for Disney proved to be its consumer products & interactive media and media network segments, which includes its long-time trouble area for Disney in ESPN.

Is it time for investors to hop off of Disney, again, as a growth stock?
Disney's consumer products and interactive media segment brought in $1.48 billion in revenue, down more than 23% and well off of Wall Street expectations of $1.75 billion, while media networks dipped this quarter to $6.23 billion, missing analysts' estimates of $6.42 billion.

Profits for consumer products & interactive media fell by more than 25% to $642 million. The company said that consumer products & interactive media faced tough comparisons from a year ago, due to a steep dip in demand for Frozen and Star Wars: The Force Awakens merchandise. Rogue One merchandise simply could not live up to the immense expectations that The Force Awakens had created.

Operating income for Disney's largest and traditionally most profitable segment, media networks, declined 4 percent from a year ago, due to higher programming costs at ESPN from escalating fees to exclusively broadcast games to professional sports leagues, such as the NFL and NBA, continuing loss of subscribers due to cord-cutting from cable-bundle subscribers and lower ad revenues.


In the last two months alone, ESPN has lost a staggering 1.2 million subscribers, suggesting the cord-cutting phenomenon is indeed steeply accelerating rather than leveling off as Disney CEO Bob Iger suggested in his last earnings call.

With his legacy on the line, Disney CEO Bob Iger is now open to the possibility
of extending his tenure at Disney
Within the media networks division, Disney's cable networks division, which includes its crown jewel ESPN, revenues dropped more than 2 percent to $4.4 billion, while operating income slid by 11 percent to $894 million.

The company's theme parks and resorts segment also missed its revenue mark, recording revenues of $4.56 billion which was down 3 percent from last year and came short of Wall Street estimates of $4.59 billion, despite having an additional theme park in Shanghai, China this year to add to its revenues totals.

Operating income in the theme parks & resorts segment was also down $311 million with a "modest decline" in hotel stays at the Disney Resorts, which isn't encouraging news for investors.


Recent reports out of Shanghai have indicated that attendance at Disney's extravagant $4 billion park, which opened just this past June, has dried up from bad word of mouth on social media from guests inside mainland China.


Without a significant televised media presence inside Communist China to overcome this setback, Disney will have a difficult, if not impossible, task to overcome the bad publicity on social media.


Disney theme parks reported a 5 percent drop in attendance year-over-year inside its theme parks around the world, which had been steadily declining throughout this past year. The current trends suggest that attendance numbers inside the theme parks will continue to fall well into 2017.

No one at Disney still has an answer to the growing problems at ESPN
Disney answer to these challenges, so far, have been to jack up the prices on everything inside their theme parks, which we expect they will continue to do, despite more complaints from its guests.

Despite the recent success of Disney's standalone Star Wars: Rogue One movie over the Christmas holiday, the studio entertainment division still saw a 7 percent decrease in revenues year-over-year to $2.5 billion and 17 percent slide in profits to $842 million during the quarter, partly attributable to a decline in home entertainment sales for On-Demand and DVD sales and lower expectations from last year's marketing phenomenon of Disney's resurrection of the Star Wars franchise with Episode VII: The Force Awakens.


Expectations to Rogue One didn't quite live up to those of The Force Awakens, suggesting that the clamor for a revitalized Star Wars franchise has died down a great deal from just one year ago. Also, many Star Wars fans were deeply disappointed with how The Force Awakens turned out as a movie, suggesting that many fans were turned off to the resurrected Disney version of the franchise.


In any case, due to Disney's recent business struggles and their lack of any succession plans when their current CEO is expected to retire next year, Disney CEO Bob Iger now says he is open to the possibility of pushing back his retirement date yet again.


Apparently, even Bob Iger does not want to leave Disney on a sour note with his legacy of success on the line.


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