Disney's Troubles Continue

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Walt Disney Co. (NYSE: DIS) earnings were supposed to drive its stock well above recent lows. In turn, this was supposed to kill the reason Nelson Peltz, one of America’s most well-known corporate raiders, had bought a huge block of Disney’s shares. He had charged Disney management, particularly CEO Bob Iger, with mismanagement of the company and battering investors. Disney’s troubles continue. (Customers are abandoning these 25 brands.)

Earnings came out. The run-up in the stock was a bust. Including after-hours trading, Disney’s share rose a little over 6%. This is hardly an endorsement of what investors think about the future. The market is up 16% over the past year, while Disney is up 4% in that time.

Investors remain skeptical because Disney’s recent success is built on cost cuts rather than reinvention of the company. Iger said he would boost previously planned cost cuts by $2 billion. However, successful companies do not cut their way to prosperity.

ESPN remains an earnings engine. However, it is still a legacy media business, and its advertising and cable fee income will drop over time. Iger wants to find a “partner,” which means he wants another company to improve Disney’s balance sheet by several billion dollars by buying part of the sports network.

Disney’s other legacy businesses have not turned around, and they will not. The best example of this is ABC, one of America’s original three TV networks, which is now decades old.

A steady engine for Disney earnings is what it calls its “experiences” segment. Fundamentally, that is its theme parks. This business delivered again. Revenue rose 13% to $8.2 billion. Operating income was up 31% to $1.7 billion.

Disney’s troubles have primarily been the same for three years. Its streaming business continues to lose money. Although Disney+ added 7 million subscribers, what Disney calls the “direct-to-consumer” business lost $420 million. It will continue to battle larger and more established rivals, particularly Netflix and Amazon.

Disney is not out of the woods. It is not even close.

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