A Weak Q1 Could Be Ahead For Disney, Pivotal Downgrades Stock

Walt Disney Co (NYSE: DIS) reported Q4 results softer than expected. The company’s performance in Q1 is likely to be weak, Pivotal’s Brian Wieser said in a report. He downgraded the rating on the company from Buy to Hold, while reducing the price target from $108 to $102.

Disney reported its Q4 total revenue down 3 percent, versus consensus expectations of flat. Adjusted EPS came in at $1.10, short of the estimate of $1.16.

“Results were primarily down because of Disney’s fiscal calendar, which led to one fewer week vs. the year-ago period. However, there was also more underlying softness than we expected in cable advertising, consumer products, the parks and the studio,” Wieser pointed out.

Weakness Ahead

• Media Networks: Management indicates a downtrend in Cable advertising in the current quarter, impacted by fewer college football games. The operating income margin contraction at Cable potentially reflects a longer-term trend, Wieser noted.
• Parks: Management noted that a hurricane would negatively impact the segment’s operating income by $40 million in the December quarter. “Parks will be impacted further by the calendar shifting $20mm into the March quarter,” the analyst added.
• Studio division: The October quarter witnessed a reversal of the current trends and the segment posted weak revenue growth and margin contraction.
• Consumer Products segment: Management cautioned about tougher comps for the December quarter, and projected a 20 percent year-over-year decline in operating income.