Disney Has a Lot to Prove on Aug. 9

By Markets Fool.com

Image source: Disney.

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OnlyWalt Disney(NYSE: DIS)investors with a keen sense of recent trading history may eye Tuesday afternoon's fiscal quarterly report with any real sense of trepidation. After all, it was a year ago -- following the announcement of its fiscal third quarter results -- that this blue-chip market darling came undone.

Shares of Disney had hit an all-time high just hours before last summer's quarterly report, only to plunge 9% the day following the poorly received quarterly report. It was pretty rough. Revenue climbed a mere 5%, falling short of Wall Street's top-line expectations. It was the media giant's slowest year-over-year revenue growth in two years.

The real trouble came as concerns surrounding ESPN's model surfaced. Subscriber numbers had peaked a couple of years earlier, and as leagues demand more money for contract deals it puts the leading sports cable network in a tough spot. ESPN is seeing its programming costs move higher as its viewership gradually declines. Disney's media networks division is still finding ways to grow in this climate, but it's getting there largely as the result of charging its customers more for access. That's not a sustainable model.

With media networks accounting for43% of Disney's total revenue in fiscal 2014, and the lion's share of its operating profits at 56%, it was easy to see why the market started to panic. Things may not be getting better on that front, but there may be new problems at the House of Mouse this time around.

Just one spark

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Analysts see revenue clocking in at $14.15 billion for the quarter, 8% ahead of last year. They see earnings rising 11% to $1.61 a share. That would be respectable, especially on the bottom line, where Disney snapped a streak of 10 consecutive periods of double-digit earnings-per-share growth during this year's fiscal second quarter.

A quarter with widening margins and what would be its strongest revenue growth during a fiscal third quarter since 2010 would normally satisfy the market, but there are a couple of question marks heading into Tuesday report.

April's surprising resignation of COO Tom Staggs continues to weigh on the succession strategy at Disney. The bigger stumbling block beyond the unsettling situation with shrinking ESPN households is Disney World's sluggish attendance. Disney experienced a year-over-year decline in park goers at its Florida resort during the fiscal second quarter, and the signs seem to suggest a repeat performance this time around.

It should still be a generally successful report. Even Disney World should post growing revenue and operating income as a result of the higher prices that guests are paying to visit its gated attractions. We'll also get the first official read on Disney's new park that opened during the quarter in Shanghai.

The fiscal third quarter was a deal-breaker last time out. Investors had better hope they don't see the same thing this time.

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Rick Munarriz owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.