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Disney Earnings: What to Watch

It's been six years since Disney (NYSE: DIS) posted a decline in annual operating results, but that streak could end when the company announces its fiscal fourth-quarter numbers this week. Its revenue and profits are both running lower through the last nine months, while consensus estimates have the entertainment giant posting flat sales for the year.

It won't matter to the big picture whether Disney grows slightly or takes a small step backward. Still, investors will be watching for indications that the entertainment giant can rebound in fiscal 2018.

The pace of media decline

Disney's core media business has been suffering as TV fans, particularly within the ESPN service, exit the broadcast ecosystem to instead consume content through apps. That shift hurts the business in two ways: by lowering advertising revenue (because of the smaller audience size) and by decreasing distribution fees, which are tied to those falling subscriber counts.

Profits are down 11% in the media unit over the last nine months, and that's been the main driver behind lower operating income for Disney overall. That's why it will be important to watch for any change in the pace of disruption that the company is seeing in the pay-TV world. Industry peers, including Discovery and Scripps Networks, recently revealed accelerating subscriber declines in the cable world. A quicker move by customers out of pay-TV packages might hurt Disney's results even as it preps its own ESPN-branded streaming service for launch early next year.

What's happening at the parks

In contrast, CEO Bob Iger and his team should have positive news to report on the parks and resorts segment. That division has grown revenue by 9% over the past nine months while reaching a record-high profit margin, and investors can thank the new Shanghai, China, park for that boost.

Image source: Disney.

Its biggest resort by far, the Shanghai Disney park handled 13 million visitors in its first year of operation. Executives believe that's just the start of what could be huge long-term growth, though. Over 300 million people live within a four-hour drive of that park, after all, and early results suggest Disney has a good shot at reaching more of that massive audience as the resort matures.

Film outlook

2017 has been a weak year for the movie industry and it was particularly slow for Disney, which came off a record 2016 that saw it lead all studios for the first time since 2003. The theater segment shrank 16% last quarter, for example, as new releases including Cars 3 couldn't match the prior-year hits of Captain America: Civil War, The Jungle Book, and Finding Dory.

Fiscal 2018 should be much stronger. There are four Marvel titles on the way, two Pixar movies, and new releases from the Disney and Disney Animation studios for investors to look forward to. The division should get started with a bang as Star Was: The Last Jedi hits theaters in December.

It will be interesting to see whether Iger and his team believe better results at the studio, consumer goods, and parks and resorts segments can offset weakness in the broadcasting division so Disney returns to its market-beating growth pace in fiscal 2018. The Disney-branded TV streaming service should come online not long after that, and it will have some huge audience draws, including the sequel to Frozen. Disney is hoping it can face the significant challenges to the pay-TV broadcast model in the meantime.

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Demitrios Kalogeropoulos owns shares of Walt Disney. The Motley Fool owns shares of and recommends Discovery Communications and Walt Disney. The Motley Fool recommends Scripps Networks Interactive. The Motley Fool has a disclosure policy.