3 things to watch as Disney reports first-quarter earnings

Riding a high on Wall Street, Walt Disney Co. will report fiscal first-quarter earnings Tuesday.

Over the last three months, shares of Disney have soared nearly 19%, in part on the strength of its latest “Star Wars” blockbuster: “Rogue One: A Star Wars Story.” The impact of “Rogue One” across Disney’s empire will be one thing to watch when the company reports earnings after regular trading ends.

The Burbank entertainment giant is expected to deliver earnings per share of $1.47, according to Zacks Investment Research. That would be below the $1.63 per share that Disney generated during the same quarter a year ago when the company got a huge lift from the release of “Star Wars: The Force Awakens.” That movie grossed more than $2 billion at the box office and goosed business across Disney’s diverse ecosystem.

Shares of Disney lost 73 cents on Monday, closing at $109.57.

Here’s a look at some of the potential earnings story lines:

Can “Rogue One” deliver?

Since its Dec. 16 release, the new, stand-alone “Star Wars” film has grossed $1.04 billion, according to Box Office Mojo. A recent report by JPMorgan analyst Alexia Quadrani projects Disney’s movie studio to deliver operating income of $869 million in the first quarter, and the consumer products and interactive division to post income of $685 million, also fueled in part by “Rogue One.” Although below last year’s figures, the results would still be strong by historical standards. Disney bought Lucasfilm, the company behind the “Star Wars” franchise, for $4.06 billion in 2012. Some analysts initially questioned the purchase, but it is now seen as a stellar one.

How is ESPN doing?

Over the last few years, concern about the performance of ESPN, a cash cow for the company, has at times weighed on Disney’s stock. The company long relied on having ESPN and other premium channels distributed to nearly all pay-TV homes, but it has been hurt by cord-cutting and the slimmed-down television packages offered by service providers. According to Nielsen data, ESPN has lost more than 9 million subscribers since 2013.

Chief Executive Robert Iger’s comments about ESPN during quarterly conference calls with analysts are now closely watched by investors. A wide sell-off of media stocks (including Disney) began in August 2015 immediately after Iger discussed a lowered forecast for the company’s TV business and subscriber losses at ESPN during a call with analysts. Since then, Disney has made several moves designed to strengthen its media operation, including a $1-billion investment last year in video streaming company BAMTech, which has been tapped to create and distribute a new ESPN-branded sport subscription streaming service that will be sold directly to consumers.

Will CEO succession be addressed?

On Monday, a research note by Barclays Capital analysts speculated about a potential contract extension for Iger, whose current deal with the company expires at the end of June 2018. Iger, 65, is expected to depart Disney when his contract is up — the company’s board of directors is looking for his replacement — but a Monday story in the Wall Street Journal said he may extend his tenure to train his yet-to-be selected successor. Iger’s former heir apparent, Thomas Staggs, left Disney’s No. 2 post last year. Barclays wrote that if Iger were to remain at the helm past mid-2018, he could “focus more on gaining a scaled distribution platform” in order to stay competitive in an environment in which “success will be determined by the ability to bundle media with more services.” Iger is no stranger to big acquisitions: Besides Lucasfilm, he also orchestrated Disney’s multibillion-dollar purchases of Pixar Animation Studios and Marvel Entertainment. (Last fall, Disney was rumored to be interested in acquiring Twitter, but such a deal — which seemed unlikely at the time — never materialized.)

Iger, who has been CEO since 2005, previously had been set to vacate his post at the end of June 2016, but in 2014 his deal was extended two years. It seems likely that Iger, also the company’s chairman, will be asked about a potential contract extension during the call with analysts Tuesday. However, when Iger fielded such a query during last quarter’s earnings call, he said little on the matter.

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@DanielNMiller