Entertainment and media conglomerate The Walt Disney Company (DIS - Free Disney Stock Report) posted good fiscal second-quarter results. (Year ends September 30th). Still, the stock slipped more than 2% in early trading likely due to weaker-than-expected revenues. 

Even though the company began fiscal 2017 on a soft note, showing difficult top- and bottom-line comparisons, its year-to-year progress improved in the March period. In all, revenues climbed 3% to $13.336 billion (slightly below our $13.436 forecast). Share earnings were up 10% for the period, coming in at $1.50, or a dime ahead of our estimate.

The lion's share of its profits stemmed from Disney's Studio and its Parks & Resorts segments. In fact, earnings at these two units increased 21% and 20%, respectively, during the quarter. Income from Consumer Products and Interactive Media was up 3%, which offset the 3% year-over-year decline from Media Networks.

Disney has invested heavily in its Parks & Resorts over the last few years. And Shanghai Disney (which opened in the third quarter of 2016) contributed nicely to recent totals. Plus, Disney's domestic parks and resorts benefited from higher volume -- increased attendance and guest spending. Even though the timing of the Easter holiday should boost results in the third quarter, this may be countered by higher operating costs.

Revenues at Studio Entertainment fell flat for the period, despite the double-digit bottom-line gain. Beauty and The Beast (released in mid-March) boosted its box office revenues, but this paled in comparison to the gains from last year's releases, namely Zootopia and Star Wars: The Force Awakens. Much of this segment's performance was driven by the smaller screens, including higher TV/SVOD distribution and home entertainment. And Disney's strong movie slate, which includes reboots of popular franchises, including Marvel's Guardians of the Galaxy, Spiderman, and Cars ought to boost totals in the back half of the year.

Media Networks struggled over the past few months. At ESPN, higher programming costs were only partially offset by increased advertising revenues and affiliate revenue growth, and weighed on its Cable division. But, more notably, Equity in the Income of Investees fell 42% over the quarter, due to a loss from BAMTech, a higher loss at Hulu, and lower results from A+E Television Networks. Looking ahead, higher programming costs will likely continue to temper results at its Cable Networks during the third quarter.

Disney has been investing more heavily in technology, to better monetize its content, and to take advantage of the shift in the media landscape. It will likely roll out subscription products, strengthen mobile platforms (and introduce new apps). This should give viewers direct access to its content, and help better engage audiences. In fact, the company plans to launch a new ESPN streaming service, with the help of its BAMTech partnership. 

Looking ahead, we believe Disney will focus on strengthening its branded content, innovative technology, and widening its global footprint. Too, the media conglomerate has tried to leverage the scale of many of its operating segments in order to drive greater efficiencies. And these moves ought to bolster margins moving forward. Even though it has plenty of projects in the pipeline, overall the company's 2017 budget will likely come in at $215 million lower than the prior year.

All told, we have raised our full-year earnings estimate by a dime, to $6.00 a share, envisioning a 5% year-over-year advance. But, we are maintaining our top-line projection at this time, and look for revenues to climb a little more than 2%, to $57 billion, for fiscal 2017.

About The Company:The Walt Disney Company operates Media Networks such as ABC and ESPN, and Studio Entertainment. Its world famous parks and resorts include Disneyland, Walt Disney World (Magic Kingdom, Epcot, and Disney’s Hollywood Studios), while the company earns royalties from Tokyo Disneyland and manages Disneyland Resort Paris and Hong Kong Disneyland. It also operates a cruise line and Consumer Products and Interactive Media segments. ABC was acquired in February, 1996; Pixar in May, 2006; and Marvel in December, 2009.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.