Walt Disney Co. has a profit problem, and that’s helped send shares of the media giant to their worst daily performance in more than two decades.
Though Disney
DIS,
-13.16%
notched record sales during its latest fiscal year, executives stunned investors with their forecast for segment operating income, which the company uses “as a measure of the performance of operating businesses separate from non-operating factors,” according to its press release.
Executives anticipate a high-single-digit rate of growth on the metric in the new fiscal year, which was far lower than analysts were expecting. The outlook compared to a consensus view for 25% growth, according to MoffettNathanson analyst Michael Nathanson. He personally was expecting 34% growth.
“Rarely have we ever been so incorrect in our forecasting of Disney profits,” he wrote in a note to clients. “Given the company’s confidence that Parks trends appear resilient, it appears that the culprit for the massive earnings downgrade is much higher than expected [direct-to-consumer] losses and significant declines at Linear networks.”
Cord-cutting and other pains that hit the traditional media business create “greater pressure to drive profitability at Disney’s domestic parks, which are now the key engine of growth,” he continued. “In addition, the company has to prove that their pivot to DTC will be worth the investment price that is currently being paid.”
That creates a tough position for the stock, in his view.
“Putting it all together, Disney needs the Parks business to not be wounded by a global macro slowdown, Linear Networks profits to stabilize and DTC profits to quickly emerge for investors to re-rate the stock higher,” Nathanson wrote. “At this point in time, the risks appear skewed against them.”
He reiterated a market-perform rating on the stock and cut his price target to $100 from $130.
Shares of Disney closed down 13.2% in Wednesday trading to log their worst single-day percentage decline since Sept. 17,…
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