shareholders have plenty of questions for the multimediaconglomerate.
But don't expect any clear answers when the company releases quarterly financial numbers after the market's close Wednesday.
Investors are confronted with a mess of information, none of it conclusive. Disney is no longer the object of an unwelcome takeover bid from cable operator
-- yet Disney CEO Michael Eisner's tenure has lost much of its inevitability, and outsiders wonder whether Comcast lurks to strike again. Disney management forecasts growth, but investors wonder how long it can last.
And Disney is showing mixed performances in its various divisions. The theme park business is on an apparent rebound, but the movie business is enduring a highly visible slump. The ESPN sports network is doing well, but the ABC-TV primetime schedule continues to suffer. The management of the TV business was shaken up recently, making the fate of the upfront selling season for ABC primetime -- due to arrive later this month -- seem more uncertain than usual.
The mixture seems designed to give investors a lot to think over, yet little chance for substantial conclusions. On Tuesday, Disney rose 50 cents to $22.60.
The Studio Line
David Miller of Sanders Morris Harris suggests that Wednesday's earnings release will have something for everybody.
Bulls will focus on radio pacings -- that is, agreements to sell advertising time -- ESPN, and theme park attendance, says Miller. "Bears will focus on theme park
per-capita spending, the studio line and weakness in consumer products and ABC," he says. Miller has a hold rating on the company and a $24 price target, and his firm has no banking relationship with Disney.
Looking on the bright side, Disney's management recently raised its earnings guidance for the fiscal year ending Sept. 30 to 40% growth, or 91 cents per share. The company has also forecast double-digit compound earnings growth through 2007.
"The big issue," says Richard Greenfield of Fulcrum Global Partners, "is how sustainable growth is beyond the first and second
fiscal quarters of 2004." Says Greenfield, "We think growth slows substantially in the second half of this fiscal year"; earnings growth, he forecasts, will fall below 10% in fiscal '05 because of tough film comparisons and slower cable network growth. Greenfield has a neutral rating on Disney; his firm hasn't done banking for the company.
Other observers have a more narrow focus. "I think the biggest concern right now is ABC, which really fell off a cliff in the second half of the season," says one buyside media analyst, who spoke on condition of anonymity.
Because Disney's fiscal year starts Oct. 1, a weak upfront will hitfiscal 2005 results, says the investor, who has no current position inDisney. Any commentary by Disney executives on the call "is only goingto be posturing," he says. "We'll know
more about the upfront in two or three weeks' time."
There are other issues on investors' minds going intoWednesday's earnings release -- the first quarterly reportsince the contentious annual meeting in early March, when the withholdvotes of an unprecedented number of dissatisfied shareholders led to Eisner's loss of his post as chairman of Disney's board.
On shareholders' minds is the issue of who might succeed Eisner as CEO. That issue is again in the spotlight following Comcast's official withdrawal, late last month, of its unwelcome bid for Disney. Comcast CEO Brian Roberts appears to no longer be a candidate for Eisner's post.
Disney's board has sought to reassure shareholders that it's on thesuccession case. Most recently in a press release it announced that, inexecutive session, the board "continued its systematic assessment of bothCEO and senior management succession."
But that succession issue, suggests the buysider, "hasn't been suitably answered from the Street's standpoint."
The uncertainty at the top, says Greenfield, is even serving to put a floor under Disney's stock price. Though Comcast walked away from a deal with Disney, there's continuing speculation that if Disney underperforms, management will be replaced or a new bidder may emerge for the company.
Other things to wonder about: What will the movie slate look like infiscal 2005, compared to a year in which the home video release of
-- produced by scheduled-to-be-estranged-partner
-- has given a strong boost to the movie business? And whateffect will a lower growth rate in subscription fees for powerhouseprogramming service ESPN have on the bottom line?
For the fiscal second quarter ended March 31, analysts surveyed by Thomson First Call are expecting earnings of 21 cents a share. The revenueconsensus is $6.92 billion. The mean EBITDA expectation is $1.18 billion,and the operating profit number is expected to be $952 million.
Within those numbers, theme park operations and cable networks areexpected to do well, partly because of weakness one year earlier in therun-up to the war in Iraq. Merrill Lynch analyst Jessica Reif Cohen, forexample, is forecasting 8% revenue growth at the theme park unit and 10%operating income growth. Cable networks, driven by ESPN, will show revenuegrowth of 14% and operating income growth of 16%, Cohen estimates. (Cohenhas a neutral rating on the stock; Merrill has done banking for thecompany.)
With the poor performance of recent theatrical releases such as
Home on the Range
somewhat offset by
, Cohen expects studio revenue to decline 3% and operating incometo drop 30%. Weak ratings at ABC, along with the absence of theexpensive-to-program Super Bowl this year, should lead to a broadcastingrevenue decline of 6%, she says, and break-even operating income after ayear-ago $105 million operating loss.