Hollywood conglomerates are getting ready for their quarterly earnings close-up just as investors are starting to debate latest industry concerns.
Pay TV cord-cutting, one dominant worry in recent quarters, has early in the year moved into the background as subscriber trends have remained fairly consistent, according to several media investors and analysts.
But just ahead of earnings season, the mood has darkened somewhat as new challenges, notably a possible writers strike and questions about advertising trends, have come into the spotlight, putting pressure on entertainment stocks.
"In the past several days, investor concern toward advertising trends - following lower-than-consensus estimated domestic ad agency growth - and the potential of a writers' strike have moved to the forefront and have likely been key contributors to weakness," Guggenheim Securities analyst Michael Morris wrote in his report previewing Hollywood earnings season on Tuesday morning.
Titled "WGA Disruption Risk Front of Mind, but Core Trends Should Show Steady Growth," his report concluded: "We do not anticipate a sustained [stock] valuation impact if a strike does occur as we believe both sides are motivated to reach a resolution." After all, "we see an extended strike as painful for WGA members and disruptive to studios and the local economy."
Regarding a potential strike's near-term results, Morris mentioned "higher network margins, loss of late-night writing, some shift to greater on-demand viewing."
As far as weaker advertising trends go, RBC Capital Markets analyst Steven Cahall said in a recent report: "U.S. ad spending grew 3 percent in the first quarter, according to the Standard Media Index. The first quarter growth rate was the slowest since 2011. National TV saw only 0.9 percent growth as broadcast increased 2.4 percent and cable declined 0.7 percent. Auto was a key driver of the weakness with a 12.4 percent decline in spending."
Ahead of upfront advertising sales season, Wall Street experts expect sector CEOs to get quizzed on the state of ad affairs and their outlook. And they are expected to highlight one area of ad strength - cable news. Cahall said revenue for Fox News, CNN and MSNBC increased 16 percent in the first quarter amid sky-high interest in Donald Trump's early efforts in the White House, according to latest data.
What does all that mean for the upfront? CEOs may share their take on earnings conference calls, but Jefferies analyst John Janedis wrote ahead of the earnings parade: "All in, we believe the 2017/2018 upfront will be weaker than a year ago due to: 1) a tough comparison, 2) more muted [ad rate] increases, 3) a decline in dollars sold/[fewer] dollars flowing back to TV, and 4) category specific weakness."
With all that in mind, NBCUniversal parent Comcast will again kick off Hollywood quarterly earnings season on Thursday when it reports how it performed during the first three months of the year and what latest trends it is seeing.
Here is The Hollywood Reporter's closer look at expectations for big entertainment companies' latest quarterly earnings reports and what to listen for on their earnings conference calls.
COMCAST (April 27)
Projections: Analysts expect earnings of 45 cents per share, versus 42 cents in the year-ago period.
What to watch for: The cable giant will provide its latest financials, but Hollywood folks will focus on the performance of entertainment arm NBCUniversal, where first-quarter operating cash flow and revenue are expected to grow again, with analysts forecasting gains at all major divisions.
Wall Street watchers have been raising their quarterly film unit estimates, citing the success of Get Out, Split and Sing. Macquarie Capital analyst Amy Yong projects first-quarter film operating cash flow of $199 million, while Wells Fargo's Marci Ryvicker even forecasts $274 million, the latter of which would mean a gain of 64 percent over the year-ago period.
Broadcast TV profitability could jump 22 percent to $346 million, continuing the unit's strong performance, according to Ryvicker. She also expects cable networks growth to remain less pronounced at around 5 percent. The division has been affected by lower subscriber figures, but the analyst recently increased her quarterly distribution revenue assumption "given the timing of [carriage] renewal agreements."
Analysts will also watch our for any comments from NBCU CEO Steve Burke about reported plans for a streaming video service covering key company networks, such as NBC and USA. Plus, Wall Street will see if Comcast chairman and CEO Brian Roberts sheds further light on the cable giant's plan to offer wireless services.
TIME WARNER (May 3)
Projections: Analysts expect earnings of $1.44 per share, versus $1.46 cents from continuing operations.
What to watch for: Ryvicker recently increased her first-quarter earnings estimate, citing "a slightly more profitable film slate," which included The Lego Batman Movie and Kong: Skull Island.
Analysts still expect the film unit's profitability to be down from the first quarter of 2016, while HBO will be up and Turner roughly unchanged. That should leave the combined operating income before depreciation and amortization for all units little changed compared with the year-ago period.
CNN's performance and outlook amid the strong run of news networks early in President Donald Trump's tenure are expected to get some attention on the earnings call.
But all eyes remain on the mega-deal. The Street will look for any body language on the part of management about the planned $85.4 billion sale to AT&T and the regulatory review of it. "As Time Warner's stock has finally risen to reflect the high likelihood that AT&T's proposal to buy the company will go through, it is now at last time to downgrade Time Warner stock from 'buy' to 'hold,'" Pivotal Research Group analyst Brian Wieser wrote in a recent note.
VIACOM (May 4)
Projections: Analysts expect earnings of 59 cents per share, compared with 76 cents.
What to watch for: The owner of Paramount Pictures and such cable networks as MTV, Nickelodeon, BET and Comedy Central will be ready for its close-up again after last quarter unveiling CEO Bob Bakish's turnaround strategy. This time around, the Street will look for early signs of how it is playing out.
Cahall recently raised his earnings per share forecast for what is the company's fiscal second quarter by 4 cents. "Our changes primarily reflect lower programming expense at media networks and slightly improved filmed entertainment results, somewhat offset by continued FX headwinds," he explained.
Cahall also said he continues to expect U.S. TV advertising revenue for the quarter to decline 4 percent, "in-line with management's expectations for it to be 'similar' to the 3 percent decline in the December quarter, excluding a drag ... from the shift of the Easter holiday to the June quarter."
In the film unit, Cahall expects another quarterly loss of $110 million, compared with the year-ago loss of $136 million. Paramount's releases in the latest quarter included xXx: The Return of Xander Cage, Monster Trucks (for which the company previously took a big write-down) and Rings.
Analysts and investors will look for latest commentary from Bakish on Viacom's turnaround plans and its success and any insight on the state of the much-discussed and -questioned multiyear film slate financing deal with Shanghai Film Group and Huahua Media. He is also expected to discuss the benefits of MGM's acquisition of Viacom and Lionsgate's stakes in Epix.
CBS CORP. (May 4)
Projections: Analysts expect earnings of 95 cents per share, compared with $1.02.
What to watch for: Cahall recently reduced his first-quarter revenue projection for CBS by about 4 percent, but increased his earnings before interest and taxes estimate by 3 percent, citing "stronger margins."
Ryvicker also recently lowered her forecasts for domestic syndication (to flat from growth of 5 percent) and cable revenue (to growth of 4 percent from 6 percent) in the quarter, "while our core network and station ad remains flat." But she also maintained her earnings estimate.
Investors and analysts will listen in on the earnings call for any comments from CEO Leslie Moonves on how this year's advertising upfront market will go and how the year overall is shaping up.
In addition, they will take note of any updates on the company's over-the-top subscription streaming services, CBS All Access and Showtime OTT, as well as any comments on other possible new streaming players, such as Verizon.
WALT DISNEY (May 9)
Projections: Analysts expect earnings of $1.44 per share, compared with $1.36.
What to watch for: Disney's film unit will again draw some headlines. Cahall has raised his quarterly film unit operating profit forecast by $50 million, but still expects it to be down at around $460 million, compared with $542 million in the year-ago period. "While Beauty and the Beast was indeed magical, coming in well-above industry expectations, and the quarter also benefited from Rogue One carryover, last year had Zootopia and carryover from Star Wars: The Force Awakens," he explained.
On the TV networks side, ESPN and ABC will get the most attention. Ryvicker forecasts networks affiliate revenue growth of 3 percent and a cable advertising gain of 10 percent "as management noted ESPN was pacing up." Plus, she wrote that "we think ESPN layoffs may help to mitigate new NBA costs." But she also expects ABC network ad revenue to stay roughly unchanged.
Expect CEO Bob Iger to discuss subscriber trends at ESPN and other cable networks again, but don't expect the company to disclose who will succeed him, another issue that has been on investors' minds as of late.
21ST CENTURY FOX (May 10)
Projections: Analysts project earnings of 47 cents per share, compared with adjusted earnings from continuing operations of 47 cents.
What to watch for: Rupert Murdoch's conglomerate has been in the headlines for the departure of Fox News star anchor Bill O'Reilly amid sexual harassment allegations and the continuing U.K. regulatory review of its offer to take full control of European pay TV giant Sky. So the Street will listen out for any commentary about those issues, among others.
"The ending of Bill O'Reilly's show will not cause any noticeably meaningful impact on the company," predicted Wieser in a recent report. "Because viewing of news-related programming is growing fast enough to more-than-compensate for O'Reilly's departure, we think domestic ad revenues at Fox are likely to fare better than we previously forecast."
But Fox News is expected to be a strong side of the latest earnings release, while other parts of the company have seen some ratings challenges. FBR & Co. analyst Barton Crockett recently lowered his profit estimate for the quarter, saying: "This largely represents a tamping down of our ambitious estimates for cable networks, reflecting demonetization and sports rights timing issues in Star India, and domestic ratings headwinds at FX and regional sports networks, mitigating strength at Fox News."
The film unit results for the quarter will include the successful Logan, Hidden Figures and The Boss Baby. "But we do not see that matching last year's Deadpool, Revenant and Kung Fu Panda 3," which came out in January last year versus Boss Baby in March this year, said Crockett.
Another issue that investors have paid attention to have been Fox's talks with cable giant Charter Communications about a new carriage deal. Any sign of a resolution will be taken as positive news.