I love the media sector, so Tuesday, February 9, will be an exciting day for me. After the market finishes its trading activities, we'll get reports from two entertainment companies: one's a big player in Hollywood, while the other would like to be just as big someday.
Let's start with the big gun. The Walt Disney Corporation (DIS) has first-quarter numbers all set to go, and investors are hoping for an unambiguous beat on the bottom line. The call is for net income to fall somewhere around 39 cents per share, according to Earnings.com. Kind of lousy, considering the Mouse made 41 cents per share in last year's Q1.
I think there's a good chance we'll see more than 39 cents, but I'll be focusing on the company's movie segment. Many on Wall Street will be joining me. Why? Because Disney is pinning its future prospects in many ways mostly on film. CEO Bob Iger acquired Marvel Entertainment in 2009 to prop up the studio's branded pipeline. And let's not forget that other big acquisition from several years ago: Pixar. When it comes to movies, Iger would rather buy his way out of a mess instead of attempting to encourage innovation within his subordinates.
Theme parks and networks are obviously vital to overall operating activities as well, but after movie income, my next stop on the release will be the statement of cash flows. I'll be interested in the amount of shares the company may have repurchased (this is important vis a vis the Marvel buy), and I would love it if the conference call finds Iger saying something about potentially improving the dividend yield because of confidence in future cash flows (here's my prediction on the subject, one which will turn out to be 100% accurate, guaranteed: he won't say anything about the dividend, sadly). I've been complaining about the yield for a long time; I probably should just forget about it.
And now, let's consider the smaller player: Lions Gate Entertainment (LGF). The studio behind the Saw and Tyler Perry franchises is expected to report a loss of 23 cents per share for the third quarter. While this would be a much narrower loss than what was booked twelve months ago, I'm sure many shareholders are becoming sick of the red ink. They want profits.
More critically, they want cash flow. Like Disney, Lions Gate's cash-flow characteristics are important, so much so that I'll be heading to the relevant statement first thing once the press release is published.
Lions Gate really needs to operate more efficiently in terms of marketing its products. No, it's not the easiest thing to do in this competitive landscape. Nevertheless, more creative ideas are needed. I'll be looking for them in the conference call, and I hope we get some word on new distribution strategies. Lions Gate, being more nimble than its larger competitors (theoretically, at least) and possessive of a reputation for taking chances with edgy, cool concepts, should push the envelope when it comes to leveraging all the platforms available today for purposes of reducing expenses and increasing content revenues.
I wouldn't trade either Disney or Lions Gate ahead of the earnings, although Disney is without a doubt the choice with a much smaller amount of risk attached to it (note: I already own a position in Disney). Better to stay on the sidelines and get the numbers first.
Disclosure: I own Disney; positions can change without notice.
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