Disney Announce Third Quarter Results

Disney held its Third Quarter results, which was heavily influenced by the 20th Century Fox purchase, but also showing a poor quarter for their Consumer Products, though other divisions including Park & Resorts were up.

“We’re pleased with our results in the quarter, including a double-digit increase in earnings per share, and excited about the opportunities ahead for continued growth,” said Robert A. Iger, Chairman and Chief Executive Officer, The Walt Disney Company. “Having earned the overwhelming support of shareholders, we are more enthusiastic about the 21st Century Fox acquisition than ever, and confident in our ability to fully leverage these assets along with our own incredible brands, franchises and businesses to drive significant value across the entire company.”

During the webcast, Bob Iger continued to promote what Disney can do with the Fox assets, including how they plan to give Fox Spotlight what it needs to do what it does best.

The upcoming streaming platform is still a high priority for Disney and have lots of plans for new contenting including a Star Wars show and more Marvel shows, as the Fox purchase gives them more to work with (such as X-Men).

Bob Iger added “Our first priority is going to be reaching our core Disney fan,”.  The new platform will launch in late 2019 and will include content from National Geographic, though no “R” rated content such as Deadpool, will be on the Disney platform, which look to be moved over to its “Hulu” platform, which they will own 60% of, following the Fox purchase.

Here are a few highlights:

Parks and Resorts

Parks and Resorts revenues for the quarter increased 6% to $5.2 billion and segment operating income increased 15% to $1.3 billion. Operating income growth for the quarter was due to increases across key operations. Results include an unfavorable impact due to the timing of the Easter holiday relative to our fiscal periods. One week of the Easter holiday fell in the third quarter of the current year whereas both holiday weeks fell in the third quarter of the prior year.

Higher operating income at our domestic parks and resorts was due to increased guest spending, partially offset by increased costs. Guest spending growth was due to increases in average ticket prices, food, beverage and merchandise spending and average daily hotel room rates. The increase in costs was due to labor and other cost inflation, partially offset by lower marketing costs. At our cruise line, growth was driven by higher passenger cruise days, which was primarily due to the Disney Fantasy dry-dock in the prior-year quarter.

The increased operating income at our international parks and resorts was due to growth at Shanghai Disney Resort and Hong Kong Disneyland Resort. Higher operating income at Shanghai Disney Resort was due to lower costs and attendance growth, partially offset by decreased guest spending. The decrease in guest spending was driven by lower average ticket prices, partially offset by higher food and beverage spending. At Hong Kong Disneyland Resort, the increase in operating income was primarily due to higher occupied room nights, average ticket prices and attendance.

Studio Entertainment

Studio Entertainment revenues for the quarter increased 20% to $2.9 billion and segment operating income increased 11% to $708 million. Operating income growth was due to increases in domestic theatrical and worldwide TV/SVOD distribution results, partially offset by film cost impairments related to animated films that will not be released and lower domestic home entertainment results.

The increase in domestic theatrical distribution results was due to the success of Avengers: Infinity War and Incredibles 2 in the current quarter compared to Guardians of the Galaxy Vol. 2 and Cars 3 in the prior-year quarter, partially offset by higher pre-release marketing costs. Additionally, the current quarter included the continuing performance of Black Panther and the release of Solo: A Star Wars Story, whereas the prior-year quarter included the continuing performance of Beauty and the Beast and the release of Pirates of the Caribbean: Dead Men Tell No Tales.

Higher TV/SVOD distribution results were due to the timing of title availabilities at our domestic pay and free television businesses, international growth and higher domestic pay television rates.

Lower domestic home entertainment results were due to a decrease in unit sales driven by the timing of the release of Star Wars titles. The DVD/Blu-ray release of Star Wars: The Last Jedi was in the second quarter of the current year whereas the DVD/Blu-ray release of Rogue One: A Star Wars Story occurred in the prior-year third quarter. Other significant titles included Black Panther in the current quarter, while the prior-year quarter included Beauty and the Beast and Moana.

Consumer Products & Interactive Media

Consumer Products & Interactive Media revenues decreased 8% to $1.0 billion and segment operating income decreased 10% to $324 million. The decrease in operating income was due to lower income from licensing activities and decreased comparable retail store sales, partially offset by lower costs at our games business. The decrease in income from licensing activities was driven by lower revenue from products based on Spider-Man and Cars, partially offset by an increase from products based on Avengers.

Cable Networks

Cable Networks revenues for the quarter increased 2% to $4.2 billion and operating income decreased 5% to $1.4 billion. Lower operating income was due to a loss at BAMTech and a decrease at Freeform, partially offset by an increase at ESPN.

In the current quarter, BAMTech’s operating loss is reported in Cable Networks as a result of our acquisition of a controlling interest in the fourth quarter of fiscal 2017. In the prior-year quarter, the Company’s share of BAMTech results was reported in equity in the income of investees. The loss at BAMTech reflects higher content and marketing costs and ongoing investments in their technology platform including costs associated with ESPN+, which was launched in April 2018.

The decline at Freeform was primarily due to lower advertising revenue and higher marketing costs, partially offset by lower programming costs. The decrease in advertising revenue was due to lower impressions from a decline in average viewership.

The increase at ESPN was due to affiliate revenue growth and the comparison to severance and contract termination costs incurred in the prior-year quarter, partially offset by higher programming costs and a decrease in advertising revenue. Affiliate revenue growth reflected contractual rate increases, partially offset by a decline in subscribers. The programming cost increase was primarily due to a contractual rate increase for NBA programming. Lower advertising revenue was due to a decrease in impressions from lower average viewership, partially offset by higher rates. Advertising revenue was adversely impacted by one less NBA final game.

Broadcasting revenues for the quarter increased 11% to $2.0 billion and operating income increased 43% to $361 million. The increase in operating income was due to higher program sales, affiliate revenue growth and increased network advertising revenue, partially offset by higher programming costs.

The increase in program sales was driven by higher sales of Designated Survivor, How to Get Away with Murder and Grey’s Anatomy, partially offset by lower sales of Quantico. Additionally, the current quarter included the sale of Luke Cage compared to the sale of The Defenders in the prior-year quarter. Affiliate revenue growth was due to contractual rate increases. The increase in network advertising revenue was due to higher rates, partially offset by lower average viewership. The programming costs increase was driven by higher cost primetime programming, including the impact of American Idol and Roseanne in the current quarter.

Equity in the income of investees decreased from $127 million in the prior-year quarter to $78 million in the current quarter due to higher losses from Hulu and lower income from A+E Television Networks (A+E). These decreases were partially offset by the absence of a loss from BAMTech, which is now consolidated and reported in Cable Networks. The decrease at Hulu was driven by higher programming and labor costs, partially offset by growth in subscription and advertising revenue. The decrease at A+E was due to lower advertising revenue and higher programming costs, partially offset by higher program sales.