Disney Stock Has a Lot to Prove This Week

Investors aren't expecting to be blown away when Walt Disney (NYSE: DIS) pulls back the curtain to reveal its latest financial results this week. The media giant will announce its fiscal second-quarter numbers on Wednesday morning, hosting an earnings call to discuss its fresh financials an hour before the market opens.

Disney shares have declined 19% since the company's last earnings report three months ago. The stock initially ticked higher after Disney posted better-than-expected results, coming within pennies of hitting a 10-month high the morning of the earnings release. But that rally didn't last. Can it move higher this week -- and this time stick to any initial upticks? Let's size up what Disney and its shareholders are facing heading into this critical update.

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Lie low and stitch

Analysts are holding out for $23.1 billion in revenue, 5% above where Disney landed for fiscal second quarter last year. That matches the 5% top-line growth that Disney investors got out of the House of Mouse back in February, but the real head-turner in that financial update was the bottom line.

Segment operating income rose 31% three months ago, and adjusted earnings soared 44%. Expectations are different now. Analysts see Disney's profit checking in flat with the $1.21 a share it posted a year earlier. This is the first time since Disney's streaming business turned profitable a year ago that the top line is expected to outpace the bottom line. Disney has consistently been cranking out quarterly earnings beats, but it's going to need a big surprise to prevent this from being the first quarter that finds adjusted net margin contracting.

There's no shortage of signs pointing to sluggish revenue growth. Comcast (NASDAQ: CMCSA) already reported its results for the first three months of the year, and it offers a similar portfolio of theme parks, media networks, and theatrical content as Disney. Its theme parks segment experienced a 5% decline in revenue, with a hefty 32% drop in adjusted earnings before interest taxes and depreciation. Its media and studio businesses saw their margins widen on meager 1% to 3% growth, but its ad revenue took a 7% year-over-year hit.

Image source: Disney.

Grumpy takes a bow

Disney has warned that it's been experiencing softness at its theme parks since last year. Revenue for its parks and experiences dipped 3% for the final three months of the 2024 calendar year (or Disney's fiscal first quarter). A Goldman Sachs note heading into this week's update was modeling a 1% decline for Disney's theme parks revenue in the fiscal second quarter that will be unveiled this week. Can Disney turn that business around? It starts a 15-month celebration at Disneyland in California next week, commemorating the 70th anniversary of the original resort. Its larger Florida resort faces the challenge of Comcast's opening of Epic Universe later this month. Will the company comment on how bookings on both coasts are shaping up heading into two potentially divergent resort performances?

Making matters worse, Disney's own theatrical releases that came out in the first three months of this year have been disappointments. Captain America: Brave New World sold $415 million in ticket sales worldwide. That would be a good haul for most films, but this big-budget production saw its previous entry, Captain America: Civil War, top $1.1 billion in global box office receipts nine years ago when admission prices were lower. The live-action Snow White reboot, which hit multiplexes two weeks before the quarter came to a close, failed to recover its production and marketing budgets by barely topping $200 million in ticket sales. Disney will inevitably be taking a one-time charge on that film. Thankfully, Disney has a much busier slate of more promising releases, starting with the reimagining of Lilo & Stitch hitting the silver screen on May 23.

There are always a lot of moving parts when it comes to sizing up Disney's financials and fundamentals. The stock has been depressed enough since its last update where the shares may not slide even if there's a less-than-perfect report. However, a strong performance and a rosy outlook can get Disney stock back above $100 again. Is Grumpy ready to step aside and let Happy have a turn? Disney shares will obviously be on the move this week.

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