Disney Tries to Jolt Its Stock Price
Last November, The Walt Disney Company replaced Christine McCarthy with Hugh Johnston as CFO.
Technically, McCarthy left of her own choosing, but the matter sounds like the personification of, “You can’t fire me! I QUIT!”
Photo: CNBC
Johnston came to Disney from PepsiCo, where he’d developed a reputation as a calm, diligent money manager.
Since Johnston’s arrival, Disney has quietly altered the way it does business, and we saw that again this morning.
Photo: PepsiCo
Your favorite company just reported its quarterly earnings, and it’s another sign of Johnston trying to get Bob Iger’s house in order.
Disney just tried to jolt its stock price. Did it work? Here’s what just happened.
Much Has Changed
Photo: CNBC
First, let’s quickly reflect back on one of Disney’s weirdest quarters ever.
When Disney last reported its quarterly earnings in May, the stock started with a price of $116.47 that morning.
Photo: CNBC
At the close of business yesterday, DIS was trading at $89.97, which is a $26.50 shave. That is NOT barbershop pricing.
You may wonder what has gone wrong with Disney to cause such investor tumult, but the answer is…very little.
Photo: Disney
Instead, we’re witnessing the fallout of a strange start to 2024.
Activist investor Nelson Peltz, at the urging of former Marvel owner Isaac Perlmutter, tried to lead a boardroom revolt.
Photo: University of Chicago
Peltz tried to push himself and former Disney CFO Jay Rasulo on the company’s Board of Directors.
Ostensibly, that went horribly for Peltz, who suffered his most humiliating defeat ever. And he got $1 billion for his efforts.
(AP File photo)
Short-term investors recognized the potential value of investing in Disney while this bit of executive drama played out in public.
So, they snagged plenty of Disney stock and rode the wave, with the stock briefly surpassing $120.
Photo: Disney
Once Peltz slunk away as a loser, everyone recognized that the money train had pulled into the station. So, they sold.
In fact, Perlmutter, who was among the largest Disney shareholders, divested himself of his entire stock holidays.
All these stock sales gradually eroded the price of the stock.
Then, Disney faced a smattering of other negative headlines, as it usually does, for whatever reason.
Photo: Ziggy Knows Disney
Lately, we’ve had the overall global economy shaking at the foundation a bit, with large stocks like Disney suffering accordingly.
Long story short, Disney stock is hovering around $90, which is a 23 percent drop in just three months. EEK!
Disney Tries to Jolt the Price
Photo: PepsiCo
The “problem” with someone like Johnston as a financial leader is that he’s much of a quiet excellence type.
Johnston will clean your balance sheet and maximize your revenue. He’ll also make suggestions when appropriate.
Photo: Petapixel
When Disney laid off 140 members of the Linear Networks division, that was a sign that Disney’s CFO didn’t like the numbers there.
Alas, Wall Street investors want sizzle, not steak. Doing well under the hood strangely isn’t as important as that sleek coat of paint or fancy rims.
Photo: NIMON/SHUTTERSTOCK
Johnston quietly accepts this and expects that the results will speak for themselves over time.
One of his low-key changes to Disney is that the quarterly earnings reports now occur as the stock market opens.
Photo: Loomis
Iger prefers the flash of waiting until after the bell to brag about all his achievements, but he’s deferred to Johnston.
That’s why we already know how Disney did this morning.
Photo: History.com
Analysts had projected the company to earn $23.07 billion with earnings per share of $1.19.
Disney surpassed expectations with $23.16 billion and stellar earnings per share of $1.39.
Of course, investors care about more than just the bottom line numbers, especially with Disney.
Lately, one of the most important factors has been the Direct-to-Consumer (DtC) division, which was famously a money-loser for several years.
Photo Credit: AP Photo/Richard Drew, File
Last quarter, Disney quietly beat its own internal projections by turning a profit with the entertainment segment of DtC.
However, Iger cautioned that this current quarter would witness a drop back to previously negotiated sports licensing rights increases.
Photo: Disney+
As fate would have it, Disney cautioned investors over nothing, as the DtC division excelled.
For the quarter, DtC reported a full segment profit of $47 million. That’s an improvement of an astounding $559 from the same quarter last year!
I should note that ESPN+, which dragged down earnings last quarter, was vital this time. Without ESPN+, DtC would have lost $19 million.
So, that segment was solidly in the black, with a profit of $66 million. That should at least temporarily delay any calls to sell or spinoff ESPN+.
Disney Experiences and Entertainment
Credit: Disney
Look, there’s one Disney division you care about the most. And there’s another one that just had a brilliant quarter.
So, let’s quickly talk about the two of them. Disney Experiences, the theme park division, had an odd quarter.
Most analysts suspected that Walt Disney World’s attendance dropped year-over-year, something Disney will likely discuss during the earnings call.
However, the Disney Experiences division was projected to increase profit marginally from its $8.326 billion last year.
Photo: Disney
The actual total came in at $8.386 billion, which signifies slight but reliable growth year-over-year.
Due to the popularity of Walt Disney World, casual fans focus too much on its performance.
Disney Wonder Deck Pool
In reality, Disney Experiences is a diverse business venture with seemingly endless revenue streams.
Also, Disney Cruise Line remains on a lingering hot streak since the pandemic’s start, which boosts the numbers mightily.
Photo: Disney
As for Disney Entertainment, the early success of Inside Out 2 buoyed those numbers.
The division reported revenue of $10.58 billion, which is a tremendous increase of four percent from the same quarter in 2023’s $10.127 billion.
Image: Pixar
Something to remember is that Inside Out 2’s numbers only reflect its first two weeks, and Deadpool & Wolverine didn’t open yet.
So, the next quarter will be MUCH better, which is a positive sign for Disney.
Photo: Marvel
The question becomes whether Disney did enough to give its stock price a jolt.
If not, I’m sorry to say that we could be looking at another round of activist investor warfare early in 2025. And nobody wants that.
And we’re trending the wrong way because the stock closed at $85.96 today, a drop of $3.98 or 4.4 percent. Investors weren’t buying what Disney was selling.
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