Investors eagerly awaiting earnings report from Disney’s Iger
When it comes to reporting quarterly earnings, Robert Iger is an old pro. He has done it 58 times as Disney’s CEO. But the next one, scheduled for Wednesday, will require him to give a performance for the corporate ages.
“It has to be an impactful, meaningful, tone-setting, agenda-changing day,” said Michael Nathanson, an analyst at SVB MoffettNathanson who has followed Disney for 18 years.
Another veteran Disney analyst, Jessica Reif Ehrlich of BofA Securities, agreed. “I don’t know that we’re going to see answers to everything, but Iger’s overall messaging is going to be critical,” she said.
So, no pressure. On Wednesday, Iger will publicly face Wall Street and Hollywood for the first time since he came out of retirement to retake the reins of a deeply troubled Disney. In late November, the Disney board fired Bob Chapek as CEO and rehired Iger, 71, who ran the company from late 2005 to early 2020. He is also contending with Nelson Peltz, the corporate raider turned activist investor.
Peltz, 80, whose Trian Partners has amassed roughly $1 billion in Disney stock and is fighting for a board seat for himself or his son, wants the world’s largest entertainment company to revamp its streaming business, refocus on profit growth, cut costs, reinstate its dividend and do a much better job at succession planning.
Most of those things were in motion at Disney before Peltz started his proxy battle, and analysts expect Iger to provide updates on at least some fronts Wednesday.
How are the content pipelines to Disney’s streaming services (Disney+, Hulu and ESPN+) going to be managed? At 6:30 a.m. on his first day back, Iger ousted Disney’s top streaming executive and ordered a restructuring of a restructuring that Chapek had put into place.
For months, Disney has been talking about cost cutting and layoffs. Where are they? “This can’t drag on,” Ehrlich said. “It’s not good for company morale.” (Speaking of morale, some Disney employees have been circulating a petition to protest Iger’s decision last month to require everyone to report to the office four days a week.)
Shareholders are increasingly worried about the decline of Disney’s traditional television business, which includes ABC and 15 cable networks, led by ESPN, Disney Channel, FX, Freeform and National Geographic. Disney’s cable portfolio has held up better than those owned by some rival companies (notably NBCUniversal), but Americans have been cutting the cable cord at an alarming pace — total hookups declined by a record 6.2 percent from October to December.
“We need an honest and appropriate view of the future of Disney’s television business,” Nathanson said. “Is there an asset change? Does spending change? Under Chapek, the messaging was never very clear.”
Even in decline, traditional television remains Disney’s largest business, delivering $8.5 billion in operating income in the fiscal year that ended in October.
Disney and other old-line media companies are facing a simple equation that has proved astoundingly difficult to solve: Profit from traditional television is declining at a faster rate than streaming losses are moderating. In Disney’s case, traditional television earnings are expected to decline by $1.6 billion in 2023, while losses from streaming will abate by only about $900 million, according to Nathanson.
In November, Disney said that losses from its streaming portfolio totaled $1.5 billion from July through September, compared with $630 million a year earlier.
But Chapek, who led the company’s November earnings call, reiterated a promise that Disney+ would turn a profit by next October. Wall Street has been skeptical of that assertion, and Iger may revise it Wednesday, along with guidance that Disney+ would have 215 million to 245 million global subscriptions by 2024. Disney+ has about 164 million worldwide.
Companies always try to put the rosiest spin possible on numbers when talking to analysts, shareholders and the news media on quarterly earnings conference calls. But the upbeat tone struck by Chapek in the November session did not sit well.
Along with widening losses in streaming, Disney had disappointing profit margins at its theme park business and missed Wall Street’s overall expectations for both revenue and net income, a rarity for the company. (When one senior Disney executive privately told Chapek before the call that his planned remarks were too positive, he called her Eeyore, the gloomy donkey from “Winnie the Pooh.”)
Iger will highlight some of Disney’s recent achievements. “Avatar: The Way of Water,” released by Walt Disney Studios, has generated $2.2 billion worldwide since it arrived in theaters Dec. 16. Disney received more Oscar nominations last month (23) than any other company. Over the end-of-year holidays, Disney’s theme parks were gridlocked, easing fears about consumer belt-tightening.
“Despite the macro headwinds, the parks still feel incredibly strong,” Ehrlich said.
But Iger will also need to contend with a lackluster set of overall numbers, at least if analysts’ forecasts are correct. Analysts are expecting per-share earnings of about 79 cents from Disney, down from $1.06 for the same period a year ago, and revenue of $23.4 billion, up from $21.8 billion a year ago.
Analysts polled by FactSet estimate that Disney+ will have 163 million subscribers, a slight erosion from the previous quarter.
Iger will probably not directly address Peltz’s proxy battle, unless an analyst prods him about it. Disney has made its position clear, saying in a Jan. 17 securities filing that Peltz had “no strategy, no operating initiatives, no new ideas and no plan.”
In a fresh eruption late last week, Trian said there was an “urgent need” for Disney shareholders to drop Michael B.G. Froman from the company’s board and give the seat to Peltz or his son. In response, Disney aggressively defended Froman, a senior Mastercard executive and former U.S. trade representative who has been a Disney director since 2018.