Current Management’s War of Words with Members of Trump’s Team Present Uncertainties

Disney Co. (DIS) just reported its quarterly financial results: Q4 Non-GAAP EPS of $1.14 exceeded the consensus forecast, but by $0.03 — not much. Revenue of $22.57 billion (+6.3% YoY) beat expectations by $80 million. DIS achieved strong 23% growth in total segment operating income for Q4 and 21% for the year.

To sum up, Disney's 4Q earnings surpassed expectations due to several key factors: Blockbuster Ticket Sales: The success of films like “Deadpool & Wolverine” and “Inside Out 2” significantly boosted ticket sales and contributed to Disney Plus subscription-based revenue. Cost-Cutting and Streamlining: Disney's aggressive cost-cutting and restructuring efforts, particularly in the streaming segment, improved profitability and contributed to positive earnings. Strategic Investments: Disney's planned $3 billion share buyback and investments in strategic areas like Epic Games and the upcoming ESPN streaming service reflect confidence in future growth.

The positive earnings report is likely to favorably impact the stock price in the short term, as indicated by the 9.3% premarket trading surge. Long-term growth prospects are definitely improving. However, the recent history of CEO Bob Iger's riffs with Elon Musk (now on Donald Trump’s team) and Florida Governor Ron DeSantis cast a shadow on the sustainability of the legendary company’s outlook under its present management, so we suggest a caution approach to its stock.

Guidance for fiscal 2025: DIS management promises high-single-digit adjusted EPS growth compared to fiscal 2024 vs. estimated growth of 4.14% YoY. Approximately $15 billion in cash is sought to accumulate through operations. Additionally, approximately $8 billion of capital expenditures are planned, while target dividend growth must be commensurate with the earnings growth. DIS is also targeting $3 billion in stock repurchases.