Though the market closed higher for the day, it’s worth noting that the indices gave up most of their intraday gains after digesting disappointing payroll-growth numbers from ADP, as well as the increasing likelihood of a September rate hike.
The S&P 500 Index finished off at 2099.84; a mere 0.31% higher than Tuesday’s close, although the index had been up as much as 0.9%.
For shareholders of Walt Disney Co. (NYSE:DIS), Sprint Corp. (NYSE:S) and Discovery Communications Inc. (NASDAQ:DISCA), however, that paltry 0.31% gain would have been preferable to the sizable losses each took.
These stocks were hurt mostly by earnings, but the specifics of each case reveal deeper reasons why the Street decided to punish these three stocks today.
Discovery Communications (DISCA)
First, the good news: Discovery Communications managed to pump up its top line for its second quarter, and topped its earnings estimates. Now, the bad news: DISCA fell short of its Q2 revenue estimates, feeling a substantial decrease in year-over-year earnings.
Choosing to see the glass as half full rather than half empty, traders sent DISCA down almost 13% on Wednesday.
Last quarter, cable television network Discovery Communications earned 49 cents per share on $1.65 billion in revenue. Analysts were only expecting a profit of 47 cents per share, but on revenue of $1.67 billion. Conversely, the company earned 54 cents per share in the same quarter a year ago, when it generated $1.6 billion worth of revenue.
An unusually strong U.S. dollar was the culprit for the sore spots, crimping the company’s international expansion efforts when they were most vulnerable. Discovery capped off its less-than-stellar earnings report by adding that its tepid results may well put the kibosh on its buyback plans for the rest of the year.
Walt Disney (DIS)
DISCA wasn’t the only media company whose stock plunged on Wednesday. Perennial performer and market-favorite Walt Disney saw shares slide 9% after its second-quarter earnings came up shy of expectations. Yes, DIS’ earnings of $1.45 per share topped the expected profit of $1.42, but Disney missed on the top line with $13.1 billion against estimates of $13.2 billion.
Once again, the Disney-owned sports channel ESPN was the core of investors’ concern, as Nielsen reported ESPN as losing 3% of its subscribers in 2014 alone. Although Walt Disney says Nielsen’s numbers are larger than the actual loss of ESPN subscribers, the Nielsen number lines up perfectly with the 3% decline in advertising revenue ESPN generated in the second quarter.
Sprint (S)
Wireless carrier Sprint took one on the chin today … well, it took two, technically.
The first punch of the one-two combination was news that T-Mobile US Inc. (NYSE:TMUS) had displaced Sprint as the nation’s third biggest carrier in terms of subscribers, sending Sprint back to the fourth place, presumably with its tail between its legs.
The knockout blow came later in the session, when TheStreet revealed that analysts weren’t compelled by the company’s plans to offer leases as a means cleaning up its balance sheet and improving liquidity. Evercore analyst Jonathan Schildkraut may have summed up these concerns best by explaining, “I don’t think Sprint has solved any cash-burn issues … It simply arranged for creative ways to finance itself through the trough.”
S shares finished the day down nearly 10%.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
