Tuesday, 6 February 2024

Disney Stock Has a Lot to Prove This Week

by Rose White

There’s a lot riding on Walt Disney (NYSE: DIS) when it steps up to post financial results for its fiscal first quarter this week. It won’t be about just the numbers when the media giant pushes out its earnings report and hosts its conference call shortly after Wednesday’s market close. There’s a proxy battle underway with a couple of activists feeling that Disney isn’t doing enough to unlock shareholder value.

If the large and critical stakeholders are right, their fellow investors will vote in new directors at the annual shareholder meeting on April 3. It will come at the expense of Disney’s own slate of favored directors. It’s a message from retail and institutional investors that could rattle the ranks of leadership at the House of Mouse. It’s CEO Bob Iger’s last chance to deliver financial results before shareholders vote. He can’t fail to disappoint.

A whole new world

Things were easier for Iger at the helm the first time around. He came in and calmed a rocky empire, spearheading deals to acquire Pixar, Marvel, Lucasfilm, and key content assets from 21st Century Fox during his reign to make sure that no other media company had anything close to its arsenal of intellectual properties.

He would step down just as the COVID-19 crisis was starting. His chosen successor, Bob Chapek, didn’t work out. Iger’s return 33 months later was initially celebrated by the investing community, but it’s been a humbling experience. The stock closed at $97.26 on Nov. 21, 2022, the first day of trading after Disney announced its beloved former CEO was coming back. The stock enters this week at $97.13, essentially unchanged against a 26% gain by the general market.

Losing a proxy battle sometimes sends shockwaves all the way to the top. It’s a “no confidence” vote by the shareholder base. It won’t likely play out this way even if Disney’s board loses this battle. Iger isn’t likely to be shown the door before his CEO contract ends in two years no matter the outcome, and he has been adamant about not wanting to stick around after the end of fiscal 2026. However, for a CEO who was celebrated and routinely extended to the point that he would pen a best-selling book as a memoir of his 15 years leading Disney, his legacy would take a hit if this sequel falls flat. Disney needs to deliver respectable results and convincing optimism on Wednesday afternoon.

Disney Stock Has a Lot to Prove This Week

Image source: Disney.

One little spark

Wall Street pros have modest expectations of this week’s results. They see revenue clocking in at $23.7 billion for the three months ending in December, less than 1% above where it landed a year earlier. A weak slate of theatrical releases over the holidays, cord-cutting consumers, and stabilizing year-over-year comparisons at Disney World will likely hold back any top-line gains for Disney+, its cruise ships, and gated attractions outside of Florida.

Analysts see a profit of $0.99 a share, flat with where it landed a year ago. This is where Disney could possibly stand out. It has posted bottom-line beats of 8% or better in three of its last four quarters. It’s also been successful in shaving costs, particularly for its streaming services where Disney looks to turn profitable by this year’s fiscal fourth quarter.

Disney doesn’t fully flesh out its guidance like other companies, a sticking point with some activists. It won’t start this week. However, Iger will need to pitch Disney’s future during the call as if his legacy is riding on it. There are several potential theatrical releases that could break Disney out of its box office slump in 2024, but they don’t start hitting the local multiplex until May. A major showdown will take place with Disney World’s biggest rival, Comcast, when the competitor opens a head-turning new theme park next year. Iger’s timeline for its streaming services to break even won’t be official until early November.

There will be several question marks heading into the iconic media stock‘s shareholder meeting in less than two months. This is Disney’s best chance to make a point — an exclamation point.

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Rick Munarriz has positions in Comcast and Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.