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Star Wars and ESPN Help Disney Make Up for Messy Q2

Messy Q2 Miss, Year On Track With Core Trends Still Strong

UBS said although Walt Disney Co  reported a "messy" second quarter miss, the company's core trends are still strong.

Issues at consumer products business drove a $0.04 EPS miss for the company. Despite delivering double-digit growth in adjusted EPS for the 11th consecutive quarter, the second quarter marked the first time Disney had failed to meet analysts' expectations in over two years.

"Consumer products disappointed at +3 percent Y/Y licensed revenue, but core earned growth were still quite strong at 1 percent ('Star Wars' outpacing 'Frozen' comps). Minimum guarantee bookings shifted into F1Q this year, leaving a difficult comp for 2Q (one that the Street did not pick up on)," Doug Mitchelson noted.

The subscriber losses had only a 1 percent impact in the second quarter versus 2 percent in the first quarter.

"We have often noted that Nielsen data for network subscriber levels (-3.5 percent Y/Y) have been overstating ESPN sub declines, and these 10-Q disclosures suggest that not only are we accurate, but ESPN's sub losses also have improved slightly recently," Mitchelson elaborated.

Although cable network advertising was disappointing at +3 percent ex-unusuals, the analyst said it is pacing up 5 percent in the third quarter.

In addition, hotel bookings are pacing up a very strong 5 percent for the third quarter and Mitchelson's analysis shows 41 percent of the days in the third quarter are at the new peak pricing for single-day tickets versus none of the days at the new value price level, favorable for Y/Y spending per guest.

The analyst's FY16 and FY17 EPS estimates remain at $5.91 (Street $5.85) and $6.31 (Street $6.25), respectively.

Mitchelson has a Buy rating and $116 price target on the stock, which closed down 4 percent to $102.29.