Disney's earnings call misses for the fourth time in the last five quarters, sending its stock plummeting

Disney stocks dip sharply the day after Disney announced yet another 
disappointing quarterly earnings call after the closing bell on Tuesday 
There is a very worrying trend at Disney: they missed Wall Street consensus estimates for the fourth time in the last five quarters as they announced their disappointing revenue numbers in their quarterly conference call to investors this afternoon.

Revenues at the House of Mouse came in at $13.34 billion, well short of the $13.45 billion expected by Wall Street analysts. As a result, Disney stock fell nearly 3.2 percent in after-hours trading as investors reacted to the bad news, and the bad news continue well into the next trading day.

The revenues miss came primarily from two of Disney's most important operating divisions: media networks and consumer products and interactive digital.

Revenues from media networks came in at $5.95 billion, which was below analyst expectations of $5.99 billion, and revenues for consumer products and interactive again underwhelmed $1.06 billion versus consensus estimates of $1.17 billion.


The primary reason for the reaction on Wall Street: a steep decline in operating income in Disney's cable business which Disney reported at $1.79 billion. This represents a 3% year-over-year decline in operating income for the cable networks and fell way short of analysts' expectations of $1.85 billion.

Disney chairman and CEO Bob Iger was again on the defensive today after
announcing disappointing revenue numbers at the quarterly earning call
Disney's cable segment, which is dominated by Disney's cash cow ESPN, typically brings in about 30% of Disney's total revenue; however, ongoing woes at ESPN has continued to drive programming cost up and operating income down for the multinational media conglomerate.

In late April, ESPN laid off more than hundred staff members—mostly highly visible on-air talent—as the 24-hour, all-sports network continued to lose subscribers at an alarming rate from traditional cable bundle packages.

Why is ESPN a particular worry for the House of Mouse? Because the media networks segment, which is dominated by its cable operations like ESPN, still brings in more than double what Disney makes off all movie tickets, DVDs and digital copies, and other revenues tied to its movie studios, combined. (See Disney's fiscal revenues by segment below.)

Disney's annual fiscal revenues by segment

Not only that, but the media networks segments account for almost half of Disney's operating income, which last year alone accounted for 49% for the fiscal year. (See chart below.) And most of that money comes from monthly carrier fees from traditional cable bundle subscribers, the vast majority of whom don't even watch ESPN.


SNL Kagan estimates that every cable subscriber across the country pays about $7.86 per month for ESPN for only having the channel in their cable bundle lineup. And over the past few years, the number of cable subscribers have been plummeting which is the underlying problem to Disney's disappointing earnings numbers over the last five fiscal quarters.

Disney's annual fiscal operating income by segment

Disney chairman and CEO Bob Iger try to get out in front of the bad news, saying that Disney has been working for the past two years to transform its sports media empire for the new digital era, where more and more viewers are noticeably cutting the cord with their traditional multi-channel cable bundles and moving to more consumer-friendly digital choices for home entertainment.

Cable subscriber numbers at ESPN has been shrinking due to 'cord-cutters'
“We recognized the early signs of a shift in the industry, anticipated its impact and reacted quickly with a strategy that reflects the reality of the evolving market,” Iger said.

Problems at ESPN continue to dog the Walt Disney Company
Yet there's still no answer from any Disney executive to ESPN's continuing free fall in its rigid and stagnant cable-bundle business model.

Disney has been trying to step up its efforts to offset cable subscriber losses at ESPN as younger viewers, known as millennials, have been moving away from the traditional pay television packages and moving toward more mobile-friendly and cheaper digital platforms, but so far, Disney has shown little results in adapting to the new digital media landscape.

Disney's other cable television subsidiaries, Freeform and the Disney Channels Worldwide, likewise saw significant subscriber losses and lower viewer ratings.


The company did beat analysts' expectations in earnings of $1.41 per share with a mark of $1.50 per share; however, with the help of an entirely new theme park in Shanghai China that Disney did not have from a year ago, this result was not completely unexpected. 
   

The bottom line is: the numbers should still have been a lot better than they were today.


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