Disney's Upbeat Outlook Overshadows Poor Q4: ETFs In Focus

Shares of The Walt Disney Company (NYSE:DIS) got a boost on Thursday after the company quelled concerns over lower advertising sales and subscriber losses at the ESPN sports network and hinted at improving growth in fiscal 2017, fiscal 2018 and beyond.

However, the company fell short of estimates on both the top and the bottom lines. Despite this, the shares of the company were up 2.5% in afterhours trading.

Q4 Numbers in Detail

Walt Disney Company posted fourth-quarter fiscal 2016 earnings per share of $1.10, which fell 8.3% year over year and missed the Zacks Consensus Estimate of $1.15.

Revenues were also down 2.7% year over year to $13.142 billion, missing the Zacks Consensus Estimate of $13.469 billion. The decrease can be blamed on lower revenues from the Consumer Products & Interactive Media segment, which declined 17% to $1,287 million. Revenues from Media Networks were down 2%, while Parks and Resorts and Studio Entertainment were up 6% and 2%, respectively.

Cable Networks revenues for the quarter were down 7% to $4 billion. Downbeat Cable Networks revenues were due to lower advertising and affiliate revenue and higher programming and production costs at ESPN (read: 3 ETFs in Focus Following Disney's Robust Q3 Earnings).

Separately, the company’s total operating income came in at $3.176 billion during the quarter, down 10% year over year. The downside was primarily due to a decrease in operating income from all segments - Media Networks (down 8%), Parks and Resorts (down 5%), Studio Entertainment (down 28%) and Consumer Products & Interactive Media (down 5%).

However, there is a silver lining to the disappointing quarter. The company guided that it expects modest earnings per share growth in fiscal 2017 and more robust growth in fiscal 2018 and beyond. The top line is expected to get a boost from an increase in online ESPN viewers.

3 ETFs in Focus

Disney currently has a Zacks Rank #3 (Hold), which underscores its potential for further upside. Given disappointing fourth-quarter results but an upbeat guidance, we have highlighted three ETFs with heavy exposure to this giant for investors seeking to bet on the stock along with the broader industry (see: all Consumer Discretionary ETFs here).

Consumer Discretionary Select Sector SPDR ETF XLY

This product offers exposure to the broad consumer discretionary space by tracking the Consumer Discretionary Select Sector Index. With an asset base of $9.7 billion, XLY is the largest and most popular ETF in its space. It holds 88 shares in its basket. Walt Disney has an exposure of 6.2% in the fund.

Sector wise, Media takes the top spot with 24.3% of the assets, followed by Internet & Direct Marketing Retail (20.1%) and Specialty Retail (20%). The product trades in a solid volume of 5.3 million shares per day and charges 14 bps in fees. XLY has gained 1.3% in the trailing 10 days and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Equity ETFs that Can Gain Even If Trump Wins).

Fidelity MSCI Consumer Discretionary Index ETF (NYSE:DIS)

This fund tracks the MSCI USA IMI (LON:IMI) Consumer Discretionary Index and holds a large basket of 379 consumer discretionary equities in the U.S. Walt Disney accounts for 5.1% of the fund’s assets. From a sector perspective, Media takes the top spot in the fund with 23.7% of the assets, followed by Specialty Retail (18.6%).

The product has amassed $208 million in its asset base and trades in a moderate volume of more than 80,000 shares per day. It charges 8.4 bps in annual fees. FDIS gained 1.7% over the past 10 days and has a Zacks ETF Rank #3 with a Medium risk outlook.

Vanguard Consumer Discretionary ETF (HN:VCR)

This ETF follows the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index and holds a large basket of 381 stocks. Walt Disney, at the fourth spot, has an exposure of 4.8% in the fund. As far as sector allocation is concerned, Internet & Direct Marketing Retail takes the top spot in the fund (16.9%) followed by Cable & Satellite (10.3%) and Restaurants (10.1%).

The product has managed to accumulate roughly $1.9 billion in its asset base so far and trades in a moderate volume of nearly 80,000 shares per day. It is very cheap with 10 bps in annual fees. VCR has gained 1.7% in the last 10 days and currently carries a Zacks ETF Rank #3 with a Medium risk outlook (read: Top-Ranked Sector ETFs & Stocks for Q4).

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