Disney is scheduled to report its Q3 results after the close.

The current Capital IQ Consensus Estimate calls for Q3 EPS of $1.74 (vs $1.87 a year ago) on sales growth of 40.5% to $21.40 billion (growth aided by last quarter's completed acquisition of Fox).

The big news in the quarter was the mid-May announcement that DIS had assumed full operational control of Hulu in return for Disney and Comcast (CMCSA) entering into a "put/call" agreement regarding NBCUniversal's 33% ownership interest in Hulu; Disney can buy its stake as early as 2024,

DIS expects its direct-to-consumer businesses to have an adverse impact on the yr/yr change in segment operating income of about $460 million.

TECHS:

DIS brings a $251 billion market capitalization into the print and trades at 21.8x forward earnings and about 3.7x sales.

RESULTS:

Reports Q3 (Jun) earnings of $1.35 per share, excluding non-recurring items, $0.39 worse than the S&P Capital IQ Consensus of $1.74; revenues rose 32.9% year/year to $20.25 bln vs the $21.4 bln S&P Capital IQ Consensus. Results for the current quarter and nine months reflect the consolidation of 21CF and Hulu LLC (Hulu) activities.

  • "Our third-quarter results reflect our efforts to effectively integrate the 21st Century Fox assets to enhance and advance our strategic transformation."

  • Media Networks revenues for the quarter increased 21% to $6.7 billion and segment operating income increased 7% to $2.1 billion. Cable Networks revenues for the quarter increased 24% to $4.5 billion and operating income increased 15% to $1.6 billion. Higher operating income was due to the consolidation of 21CF businesses (primarily the FX and National Geographic networks) and an increase at ESPN, partially offset by a decrease at Freeform. The increase at ESPN was due to higher advertising and affiliate revenue, partially offset by an increase in programming and production costs. Higher advertising revenue was due to increases in units sold and rates, partially offset by lower viewership. Affiliate revenue growth was driven by contractual rate increases, partially offset by a decline in subscribers.

  • Parks, Experiences and Products revenues for the quarter increased 7% to $6.6 billion and segment operating income increased 4% to $1.7 billion. Operating income growth for the quarter was due to increases at our consumer products businesses and Disneyland Paris, partially offset by a decrease at our domestic parks and resorts.

  • Studio Entertainment revenues for the quarter increased 33% to $3.8 billion and segment operating income increased 13% to $792 million. Higher operating income was due to an increase in theatrical distribution results and lower film cost impairments at our legacy operations. These improvements were partially offset by a loss from the 21CF businesses and lower TV/SVOD and home entertainment distribution results at our legacy operations.

  • Direct-to-Consumer & International revenues for the quarter increased from $827 million to $3,858 million and segment operating loss increased from $168 million to $553 million. The increase in operating loss was due to the consolidation of Hulu, the ramp up of investment in ESPN+, which was launched in April 2018 and costs associated with the upcoming launch of Disney+. Results for the quarter also reflected a benefit from the inclusion of the 21CF businesses due to income at the Fox and National Geographic international channels, partially offset by a loss at Star India.

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