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Disney Earnings: What to Watch on Thursday

Walt Disney Co. (NYSE: DIS) is slated to report its fourth-quarter and full-year results for fiscal 2017 after the market closes on Thursday, Nov. 9.

Investors should keep expectations in check, as the entertainment giant is poised to turn in tepid year-over-year quarterly and full-year 2017 results. The two main reasons for 2017's weak performance have been the extremely tough comparables the company has faced in its movie business, which had a phenomenal, record-breaking year last year, and the continued struggles in the cable business stemming from the industrywide phenomenon of cord-cutting.

The good news is that Disney CEO Bob Iger has long said that fiscal 2018 should see the company resume its more robust previous growth trajectory. So investors' main focus should be on how well the company seems to be setting itself up for success in fiscal 2018 and beyond.

Image source: Disney.

The headline numbers

Here are year-ago results to use as benchmarks:

Metric

Fiscal Q4 2016 Result

Revenue

$13.14 billion

Segment operating income

$3.18 billion

Net income

$1.77 billion

Earnings per share (EPS)

$1.10

Adjusted EPS

$1.10

Data source: Disney.

Disney doesn't provide earnings guidance. For the quarter, Wall Street analysts expect it to post adjusted EPS of $1.14 on revenue of $13.27 billion, representing 3.6% and 1% increases, respectively, from the year-ago period. For fiscal 2017, analysts are looking for adjusted EPS of $5.76 on revenue of $55.66 billion -- or earnings inching up 0.7% on flat revenue.

While long-term investors shouldn't pay too much attention to Wall Street's near-term estimates, they can be helpful to know because they can help explain market reactions.

Beyond the headline numbers, here's what to watch in Thursday's report.

Media networks: ESPN cord-cutting pressures, direct-to-consumer video streaming plans

Investors are likely to see more of the same in Disney's cable business, which has been shedding subscribers as consumers are increasingly cutting (or slimming down) their cable cords, and using video streaming services to consume TV and movies. ESPN's cord-cutting woes get the lion's share of the attention because the sports cable network has long been the company's cash cow.

The only question on the cable front likely remains the degree to which operating income will decline. Last quarter, it declined 23% year over year, and for the first nine months of fiscal 2017, it's down 13% from the year-ago period, dragging the segment's operating income lower by 22% and 11%, respectively. These drops are being driven by the declining number of subscribers -- which also takes a bite out of advertising revenue -- coupled with higher programming costs.

Disney has been making aggressive moves to position itself to profit in the changing consumer-media market. Investors should get an update -- at least on the earnings call -- about Disney's huge plans to launch its direct-to-consumer video streaming service, which it announced last quarter and should roll out early in the fiscal year.

Parks and recreation: The consistent workhorse should come though

Parks and recreation -- Disney's second-largest business -- has been the consistent workhorse for the company all year. In the third quarter, operating income jumped 18% year over year, and it's up 17% for the first three quarters of the year. Results have gotten a nice boost from the success of Shanghai Disney, which opened in mid-June 2016. Beyond that, however, the company's domestic parks business has generally been a solid performer, as customers have largely been immune to ticket-price increases and have increased their spending on food and beverages and on hotels.

It should be interesting to see how well Disney's massive park in China performed, from a revenue perspective, in the quarter. This will be the first quarter where the park was open for the entire quarter in the year-ago period, so it will be an apples-to-apples comparison.

Studio entertainment: A powerful movie slate on tap for fiscal 2018

Investors can probably expect another tepid showing from Disney's legendary movie-making business, as has been the case all year due to 2016 being so exceptional. For the first nine months of the year, operating income is down 8% year over year, which is actually a respectable showing considering the ultra-high-bar comparable. The fiscal fourth quarter doesn't usually make much of a difference in the company's annual results anyway, as it's historically the slowest quarter for the entire movie business.

Like the Force, the new fiscal year is with us -- and it's poised to start on a powerful note when Star Wars: The Last Jedi hits the silver screen before the holidays. Investors and moviegoers alike can also look forward to four Marvel films, two whimsical Pixar titles, and new releases from Disney Pictures and Disney Animation rolling out this fiscal year.

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Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has a disclosure policy.