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Disney (DIS) to Report Q4 Earnings: ETFs in Focus

Sweta Jaiswal, FRM
·4 min read

Disney (DIS) will report fourth-quarter fiscal 2020 results on Nov 12, after the closing bell. 

Let’s take a look at this entertainment giant’s fundamentals ahead of its earnings release.

Disney has an impressive earnings surprise history. Its bottom line topped estimates in three of the trailing four quarters, the average surprise being 27.6%. The Zacks Consensus Estimate for the fiscal fourth quarter has widened from a loss of 63 cents to a loss of 68 cents over the past 90 days. However, the company delivered earnings of $1.07 in the prior-year quarter. The consensus mark for revenues stands at $14.34 billion, indicating a decline of 24.9% from the year-ago period’s reported figure. The stock has a VGM Score of F and belongs to a bottom-ranked Zacks industry (bottom 6%).

Coronavirus Impact to Keep Hurting Results

The coronavirus outbreak has so far largely impacted consumer spending. Major retailers, restaurants and hotels, theme and amusement parks plus cruises in the United States had to shut down operations, both domestically as well as internationally. In such a scenario, Disney’s results for the fiscal fourth quarter are expected to reflect the pandemic impact, which forced the closure of its theme parks and cruise ships, and the postponement of movie releases.

Disney’s tourism-related businesses are suffering due to the pandemic, resulting in around 28,000 job cuts at its theme-park, cruise-line and retail operations, per sources. Disney had to keep the California and Florida parks shut in the to-be-reported quarter while the Shanghai and Hong Kong parks operated on downsized capacity due to strict social-distancing norms. This is expected to have hurt occupancy levels, thereby denting the company’s top-line growth. Making matters worse, people reportedly restricted their spending on movies, concerts and theme parks, which is weighing on the company’s financials.

Meanwhile, the company’s video streaming platform Disney+ is expected to provide some support to Disney’s earnings results. Notably, the pandemic compelled people to maintain social distancing and work remotely. More and more people are spending time at home, keeping with the safe-distancing guidelines and switching to modes of in-house entertainment.

Our Methodology

Our proven model doesn’t conclusively predict an earnings beat for Disney this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of beating estimates. But that’s not the case here as elaborated below.

Disney currently has a Zacks Rank #4 (Sell) and an Earnings ESP of +22.44%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

ETFs in Focus

The anticipated weak results might hugely affect ETFs, especially those that have the largest allocation to this media and entertainment conglomerate.

iShares Evolved U.S. Media and Entertainment ETF IEME

This actively-managed ETF employs data science techniques to identify companies with exposure to the media and entertainment sector. Holding 89 stocks in its basket, Disney occupies the second position in the basket with 5.4% share. The fund has accumulated $9.9 million in its asset base and charges 18 basis points (bps) in annual fees (read: ETFs to Shine as Disney Works on Revamping Streaming Arm).

iShares U.S. Consumer Services ETF IYC

This ETF offers exposure to U.S. companies that distribute food, drugs, general retail items and media by tracking the Dow Jones U.S. Consumer Services Capped Index. It holds 132 stocks in its basket with Disney taking the third spot at 4.6%. The fund amassed $1.11 billion in its asset base. It charges 43 bps in annual fees from investors (read: ETFs to Win From the Netflix, Amazon Q3 Earnings Faceoff).

The Communication Services Select Sector SPDR Fund XLC

This ETF offers exposure to the communication services sector of the S&P 500 Index and accumulated $11.15 billion in its asset base. It follows the Communication Services Select Sector Index and holds 26 stocks in its basket with Disney occupying the fifth position at 4.6%. The product charges 13 bps in annual fees (read: Will Google ETFs Keep Shining on Q3 Earnings Optimism?).

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iShares U.S. Consumer Services ETF (IYC): ETF Research Reports
 
iShares Evolved U.S. Media and Entertainment ETF (IEME): ETF Research Reports
 
Communication Services Select Sector SPDR ETF (XLC): ETF Research Reports
 
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