What to Expect From Disney's Earnings -- and It's Not 'Guardians of the Galaxy'

NEW YORK (TheStreet) -- The Walt Disney Company (DIS) handed the summer movie box-office a late-season rush over the weekend with its $94 million record-breaking domestic ticket haul for little-known superhero film Guardians of the Galaxy. Worldwide sales topped $160.4 million, well over estimates given the film's focus on a tertiary franchise outside of sure bets such as Marvel's Iron Man.

While Guardians sales aren't included in Disney's third-quarter ended June 30, the success bodes well for healthy growth at the company headed by CEO Bob Iger heading into its earnings report after the close of trading on Tuesday.

Analysts surveyed by Thomson Reuters anticipate $2.03 billion, or $1.16 a share, in net income, compared to $1.88 billion, or $1.03 a share, during the same period a year earlier. Revenue estimates of $12.16 billion represent a 5% increase.

It's expected Burbank, Calif.-based Disney will record year-over-year growth in its three largest divisions: studio entertainment (which includes DVDs and box office sales), media networks (featuring broadcast and cable properties such as ESPN and ABC), and parks and resorts (such as at flagship sites in Anaheim, California and Orlando, Florida),

Studio Entertainment

Despite overall summer box office revenue down as much as 20% year over year, Captain America: The Winter Soldier and Maleficent should give studio entertainment's topline a boost, said Hudson Square Research's Jeffrey Logsdon in a note. The Sleeping Beauty reinterpretation starring Angelina Jolie in the eponymous role has held its spot as the second-highest-grossing film domestically this season, surpassed only by Transformers: Age of Extinction. Since its May 30 debut, the film has generated $234.7 million in North American markets. The April release of Captain America: The Winter Soldier was also a hit, generating worldwide gross of $713.24 million, nearly double its 2011 predecessor.

Frozen should continue to pad Disney's topline nine months after its initial domestic theatrical debut, thanks to a staggered international release and continued demand in digital and home video. Its success in Japan, in particular, should boost revenue -- released mid-March, the film racked up more than $250 million through its 19-week cinematic run, becoming the third-highest-grossing flick in Japan.

On the bottom line, success in those properties should fare comparatively well. In the year-ago quarter, operating income tumbled 36% as exorbitant marketing costs for tent-pole flop The Lone Ranger (a $215 million production which generated only $89.3 million domestically) took a bite out of the summer's number one hit Iron Man 3.

Media Networks

Media networks, Disney's most profitable segment accounting for around 44% of total revenue and 64% of operating income, is expected to get a healthy boost from live sporting events the World Cup and NBA Playoffs.

ESPN likely saw a late-quarter kick in ratings as the soccer tournament began broadcast in mid-June. "First half of the World Cup broadcasts benefit though ESPN & ABC (record ratings across the board) should offset typical deferred revenue shifts at ESPN," said Logsdon. "We believe EPSN saw slightly higher CPM gains as live sports (especially NFL and College football advertising rights) are in high demand."

Similarly, NBA Playoffs and Finals in the first half of the quarter should benefit ABC and ESPN, particularly in making up for ratings weakness in broadcast and cable properties across the media industry.

Topeka Capital Markets' analyst David Miller said the firm's earnings have been upwardly revised twice over the quarter, once in response to strength in ESPN ad sales for the World Cup. In a note, Miller said analyst consensus of $1.16 a share is too low, expecting EPS as high as $1.23. The firm forecasts $12.4 billion in revenue.

Theme Parks

A later-than-normal Easter should shift second-quarter sales into an already seasonally-strong third quarter. Needham & Co. analyst Laura Martin anticipates a 9% sales uptick to $3.99 billion as a result. 

Pricing increases and higher spend per guest should also boost the segment's quarter, noted Logsdon. "Theme Park attendance (low single digit gains) and pricing increases/spend per guest (up mid-single digit), $45 million boost from Spring / Easter holiday shift should translate into a 22% increase in operating income in the quarter," he said.

Theme park margins should also see an approximate 90 basis point bump due to the shifted Easter season with gross margins of around 20.7% compared to 18.7% a year earlier.

However, even in the event the company misses estimates this quarter, a full-docket of promising future projects should keep share prices growing in the long-term. In its parks segment, the company is expanding into Shanghai with a resort slated to open in late 2015. Meanwhile, Disney should continue to dominate the box office with the latest installments in some of its most profitable franchises through to 2016, including a sequel to Avengers, the latest Star Wars films, Finding Dory and Captain America 3.

--Written by Keris Alison Lahiff in New York.

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