Disney Announce 2nd Quarter Financal Results
The Walt Disney Company today reported quarterly earnings for its second fiscal quarter ended April 1, 2017. Diluted earnings per share (EPS) for the quarter increased 15% to $1.50 from $1.30 in the prior-year quarter. Excluding certain items affecting comparability(1), EPS for the quarter increased 10% to $1.50 from $1.36 in the prior-year quarter. EPS for the six months ended April 1, 2017 increased to $3.05 from $3.04 in the prior-year period. Excluding certain items affecting comparability(1), EPS for the six months increased 2%.
“Disney delivered another quarter of double-digit EPS growth, driven by the strong performance of our Studio and Parks and Resorts,” said Robert A. Iger, Chairman and Chief Executive Officer, The Walt Disney Company. “Our continued strong performance is a direct result of our proven strategic focus on great branded content, innovative technology and global growth. We’re pleased with our results in Q2 and remain confident in our ability to continue to deliver significant shareholder value over the long term.”
Here are some of the main points from the results:
Cable Networks
Cable Networks revenues for the quarter increased 3% to $4.1 billion and operating income decreased 3% to $1.8 billion. The decrease in operating income was due to a decrease at ESPN, partially offset by increases at the Disney Channels and Freeform.
The decrease at ESPN was due to higher programming costs, partially offset by affiliate and advertising revenue growth. The programming cost increase was due to the shift in timing of College Football Playoff (CFP) bowl games relative to our fiscal quarter end and contractual rate increases for NBA programming. One CFP game was aired in the second quarter of the prior year, whereas four CFP games were aired in the current quarter.
Affiliate revenue growth was due to contractual rate increases, partially offset by a decline in subscribers. Higher advertising revenue was due to higher rates, which included the benefit of the CFP timing shift, partially offset by lower impressions. Higher results at the Disney Channels and Freeform were driven by lower programming costs and higher affiliate fees, partially offset by lower Freeform advertising revenue due to a decrease in impressions. Lower programming costs at the Disney Channels and Freeform was due to the timing of airing new seasons and a lower cost mix of Freeform programming. Affiliate revenue growth was due to contractual rate increases, partially offset by a decline in subscribers.
Broadcasting
Broadcasting revenues for the quarter increased 3% to $1.9 billion and operating income increased 14% to $344 million. The increase in operating income was due to higher program sales income, affiliate revenue growth and a decrease in primetime marketing costs. These operating income increases were partially offset by lower advertising revenue and higher programming costs.
Higher operating income from program sales was driven by the sale of Iron Fist and higher sales of How to Get Away with Murder in the current quarter compared to the sale of Daredevil in the prior-year quarter. Additionally, results benefited from a lower cost mix of programs sold in the current quarter. These increases were partially offset by an unfavorable impact from foreign currency translation. Affiliate revenue growth was due to contractual rate increases. The decrease in advertising revenues included lower network impressions and lower political advertising at our owned television stations, partially offset by higher network rates. Higher programming costs were due to a higher cost mix of programming and contractual rate increases for acquired content.
Equity in the Income of Investees
Equity in the income of investees decreased 42% to $88 million due to a higher loss from Hulu, lower income at A +E Television Networks (A+E) and a loss at BAMTech, which was acquired in August 2016. The decrease at Hulu was due to higher content, marketing and labor costs, partially offset by higher advertising and subscription revenue. The decrease at A+E was due to lower advertising revenue.
Parks and Resorts
Parks and Resorts revenues for the quarter increased 9% to $4.3 billion and segment operating income increased 20% to $750 million. Operating income growth for the quarter was due to the opening of Shanghai Disney Resort in the third quarter of the prior year and an increase at our domestic parks and resorts. Segment results were adversely impacted by the timing of the Easter holiday, which occurred in the second quarter of the prior year compared to the third quarter of the current year. This impact was partially offset by the shift of the New Year’s holiday relative to our fiscal periods.
The New Year’s holiday fell in the second quarter of the current year whereas it fell in the first quarter of the prior year. Operating income growth at our domestic parks and resorts was due to higher volumes, driven by increased attendance and guest spending on food and beverage, as well as higher operating participant income from Disney Springs. These increases were partially offset by higher costs. Higher costs were due to labor and other cost inflation, increased marketing spend and higher expenses for new guest offerings, partially offset by efficiency initiatives.
Studio Entertainment
Studio Entertainment revenues for the quarter decreased 1% to $2.0 billion and segment operating income increased 21% to $656 million. Higher operating income was driven by growth in TV/SVOD distribution, lower film cost impairments and an increase in home entertainment results. These increases were partially offset by a lower revenue share from the Consumer Products & Interactive Media segment.
Higher TV/SVOD distribution results were driven by international growth and higher domestic rates, partially offset by the timing of domestic title availabilities. The increase in home entertainment results was due to higher average net effective pricing reflecting a higher sales mix of new release and Blu-ray titles. New releases in the quarter included Moana and Doctor Strange compared to The Good Dinosaur in the prior-year quarter.
This increase was partially offset by lower unit sales of Star Wars Classic titles. Theatrical distribution results were comparable to the prior-year quarter. The current quarter benefited from lower pre-release marketing costs and the strong performance of Beauty and the Beast. However, these benefits were offset by the performance of Star Wars: The Force Awakens and Zootopia in the prior-year quarter compared to Rogue One: A Star Wars Story and Moana in the current quarter.
Zootopia was released in the second quarter of the prior year, whereas Moana was released in the first quarter of the current year. The decrease in revenue share with the Consumer Products & Interactive Media segment was due to stronger performance of merchandise based on Star Wars and Frozen in the prior-year quarter.
Consumer Products & Interactive Media
Consumer Products & Interactive Media revenues for the quarter decreased 11% to $1.1 billion and segment operating income increased 3% to $367 million. Higher operating income was due to an improvement at our games business driven by a favorable impact from the discontinuation of our Infinity console game business in the prior-year quarter. This benefit was largely offset by lower licensing results and a decline at our retail business. The decrease in licensing results was due to lower revenue from products based on Star Wars and Frozen and an unfavorable impact from foreign currency translation.
These decreases were partially offset by a decrease in revenue share with the Studio Entertainment segment in the current quarter and a benefit from licensee settlements. Lower operating income at our retail business was due to lower comparable store sales, reflecting higher sales of Frozen and Star Wars merchandise in the prior-year quarter. This decrease was partially offset by sales of Moana merchandise in the current quarter.
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