Stocks sold off on Thursday, with the Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) posting moderate losses.
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Health care stocks were particularly weak, with the Health Care Select Sector SPDR ETF (NYSEMKT: XLV) losing 1%. Consumer cyclicals were a rare bright spot; the Consumer Discretionary Select SPDR ETF (NYSEMKT: XLY) gained 0.3%
As for individual stocks, Walt Disney (NYSE: DIS) and Twenty-First Century Fox (NASDAQ: FOX) (NASDAQ: FOXA) announced a major deal, and Pier 1 Imports (NYSE: PIR) tumbled on a weak outlook for the holiday quarter.
Image source: Getty Images.
Disney buys a chunk of the Murdoch media empire
The wraps were taken off the widely rumored Disney/Fox deal today, and while the particulars didn't have any major surprises, investors showed their approval, bidding Fox B Class shares up 5.8% and Disney shares up 2.8%. In a $66.1 billion deal, Disney will acquire Twenty-First Century Fox, including its film and TV studios, FX Networks, National Geographic Partners, Fox Sports Regional Networks, Star India, and Fox's interests in Hulu and Sky. Fox will spin off its remaining assets -- including the Fox Broadcasting network and stations, Fox News Channel, Fox Business Network, FS1, FS2, and Big Ten Network -- into a new, publicly traded company.
In the all-stock deal, Disney will issue 515 million new shares and Fox shareholders will get 0.2745 shares of Disney stock for every Fox share. Disney will also assume about $13.7 billion of net debt. Additionally, it was announced that Bob Iger will be staying in his CEO and chairman roles through 2021.
Iger emphasized the strengths of the deal in a conference call. Fox's studios and content libraries will give the company a lot of avenues to build and extend story lines. The regional live sports networks will fit nicely with ESPN to bring regional sports to the national audience, and the international TV networks will open up avenues for overseas expansion. The 60% control of Hulu that Disney will have will broaden its direct-to-consumer capabilities and complement its upcoming streaming service.
Iger admitted the deal will receive close scrutiny from regulatory authorities, but his optimism that the deal will be approved was evidently shared by investors today.
Pier 1 misses on profit, gives weak guidance
Shares of retailer Pier 1 were hammered today, falling 29.5% after the company reported disappointing third-quarter results and cut guidance for full-year earnings in half. Sales decreased 1.4% to $469 million, which was actually slightly above the analyst consensus of $467 million. But earnings per share came in at $0.09 versus expectations of $0.11, and marked a steep drop from $0.22 in adjusted EPS the year before. The company slashed full-year adjusted EPS guidance from $0.38-$0.48 to a range of $0.17-$0.25.
Comparable-store sales fell 0.7%, but would have been a full percentage point higher if it weren't for the hurricanes, according to Pier 1 officials. That figure was within the company's guidance, but promotional activity led to lower margins, and that accounted for the profit miss. Looking forward, the company said it had solid November sales, but trends have "dropped considerably" in December.
In the conference call, CEO Alasdair James elaborated on the problems in December, saying, "First, we utilized a promotional program during the first two weeks of December which has simply not been effective in delivering sales uplift. Next, our merchandise is not resonating well enough with the customer to overcome the considerable marketing investments and value-driven messaging of our competitors."
Ineffective promotions and merchandise that isn't resonating was a combination that led investors to conclude that Pier 1 could be a retail loser this holiday season.
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Jim Crumly owns shares of Walt Disney and has the following options: long January 2019 $80 calls on Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has a disclosure policy.