Earnings season continues and this week we have two companies reporting that provide a look at the entertainment and travel industries. Disney (DIS) reports second-quarter earnings and The Priceline Group (PCLN) reports fiscal third-quarter earnings after the closing bell today. Like other companies in the entertainment and travel industries, their businesses can be impacted by consumer discretionary spending and global travel trends.
Disney Earnings and Trading Activity
One of the big questions on many analysts' minds is how has ESPN performed this quarter, which has been a consistent focus in recent quarters amid declining cable TV subscribers and higher programming costs. Historically, fiscal Q3 has been softer quarter for ESPN, partially due to the fact that we're done with basketball, heading into football season and baseball is the major sporting event right now-not that there's anything wrong with that.
In the last quarter, DIS reported that its Media Networks revenue increased 3% year over year to $5.9 billion, while operating income in the segment decreased 3% year over year to $2.2 billion. The company primarily attributed the decline in operating income to ESPN, which it said was a result of higher programming costs that were partially offset by affiliate and advertising revenue growth.
While the Media Networks segment has been a cause for concern among many analysts, the Parks and Resorts segment has delivered stronger growth in recent quarters. In the fiscal second quarter, Parks and Resorts revenue increased 9% year over year to $4.3 billion and operating income increased 20% year over year to $750 million. DIS attributed the operating income growth to its new Shanghai resort, which opened in the third quarter of fiscal 2016, as well as increased attendance and guest spending on food and beverage at its domestic parks and resorts.
For the company's upcoming fiscal Q3 results, DIS is expected to report earnings of $1.53 per share, down from $1.62 in the prior-year quarter, on revenue of $14.44 billion, according to Wall Street analyst estimates. While earnings are expected to decline, revenue is projected to increase slightly from $14.28 billion in the same period last year.
DIS has been in a little bit of a rut so far in 2017 and is close to flat on the year compared to almost a 10% increase in the S&P 500 (SPX). With the stock closing at $106.35 yesterday, options traders have priced in about a 3.5% potential share price move in either direction around the upcoming earnings release, according to the Market Maker Move indicator on the thinkorswim platform.
In short-term trading at the August 11 weekly expiration, calls have been active at the 110 and 111 strike prices, while puts have been active at the 101 and 105 strikes. As of this morning, the implied volatility is at the high end of the range at the 83rd percentile.
Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.
FIGURE 1: DISNEY DIVISIONS. Disney's Parks & Resorts division and its ESPN Channels are two of its largest revenue and profit drivers, which is why they're often two of the main focuses among many analysts and investors. TD Ameritrade clients can analyze potential revenue drivers of a stock on the Fundamentals tab on the thinkorswim platform. Trefis information and estimates used in Company Profile are provided by Insight Guru, a separate and unaffiliated firm. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
The Priceline Group Earnings and Trading Activity
PCLN operates a wide range of online travel and reservation properties that include Booking.com, Agoda.com, Kayak, rentalcars.com and OpenTable. Over the years, it has added to its properties through acquisitions and most recently agreed to acquire Momondo Group, a European online travel company, in February 2017 for $550 million.
That acquisition is expected to expand its European operations, which currently generates a bulk of its international revenues and profits. Due to its European exposure, CFRA analysts have cautioned that an economic slowdown in the area is a risk that could negatively impact PCLN.
Beyond just Europe, global consumer spending plays a big part in PCLN's business. When consumers are feeling good about their financial situation, they might be more likely to take vacations. Although the global economic recovery has been sluggish in many parts of the world, the company has continued to grow gross travel bookings.
In the first quarter of 2017, its portfolio of brands booked over 173 million room nights, up 27% compared to the prior-year quarter, according to a company press release. Last quarter, management also highlighted Booking.com's accommodations network expanding to 1.2 million properties and its rental car business, which saw a 15% year-over-year increase in rental car days.
For the second quarter, PCLN is expected to report earnings of $14.25 per share, up from $13.93 in the prior-year period, on revenue of $3 billion, according to Wall Street analyst estimates. The company hasn't missed earnings estimates in the past eight quarters.
The stock has continued to rally in 2017 and is up about 38% year to date, closing at $2042.64 yesterday. Around PCLN's upcoming earnings release, options traders have priced in about a 4% potential share price move in either direction, according to the Market Maker Move indicator.
Looking at short-term options trading at the August 11 weekly expiration, calls have been active across a range of strike prices, while puts have been active at the 2020 and 2040 strikes. With the stock just off its all-time high of $2044.51 hit yesterday, trading has been heavier on the put side. As of this morning, the implied volatility is at the 66th percentile.
FIGURE 2: PCLN YTD PERFORMANCE. Priceline's stock has rallied quite a bit this year, up 38.24% so far in 2017, compared to a 17.58% increase for the Nasdaq (COMP). Chart source: thinkorswim by TD Ameritrade. Data source: Standard & Poor's. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
In addition to earnings this week, two widely followed economic indicators will be released. July's Producer Price Index is released on Thursday and the Consumer Price Index comes out on Friday. There's also a string of Fed speakers later in the week, so we'll see if we get any additional insight regarding the Fed's plans to unwind its balance sheet.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.