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Friday, February 8, 2019

6 Takeaways on Disney Earnings

February 8, 2019

The Walt Disney Company served up its latest earnings report on February 5th, and it provided a few key points that Disney watchers, fans and investors should keep in mind. Here are a few takeaways in no particular order.

Takeaway #1: Decline in Earnings, But Beating Expectations.Disney’s earnings per share for its latest quarter (ending on December 29, 2018) declined by 3 percent compared to the previous year’s same quarter ($1.84 vs. $1.89). That actually beat market expectations, however.

Takeaway #2: Domestic Theme Parks and Broadcast Networks Key Positives.The key plusses came from better-than-expected performance among Disney’s broadcast networks, and solid results for Disney’s domestic theme parks and resorts. The company reported, “Operating income growth at our domestic theme parks and resorts was due to increased guest spending and higher occupied room nights. Guest spending growth was due to higher average ticket prices, an increase in food, beverage and merchandise spending and higher average hotel room rates.”

Takeaway #3: Studio Entertainment Revenues and Earnings Off.Studio Entertainment took a hit as movie releases in the quarter didn’t line up well with the same quarter in the previous year. Disney explained: “The decrease in theatrical distribution results was due to the strong performance of Star Wars: The Last Jedi and Thor: Ragnarok in the prior-year quarter compared to Mary Poppins Returns and The Nutcracker and the Four Realms in the current year. Other significant releases included Ralph Breaks the Internet in the current quarter, while the prior-year quarter included Coco.”

Takeaway #4: Investment Costs for Disney Streaming Service.Direct-to-Consumer & International suffered a loss of $136 million. That was due to investments being made in Disney streaming services, namely, ESPN+ and Disney+, which is due to come on line later this year. Plus, it must be noted that Disney’s costs in the near term not only include dollars being invested in technology and content for Disney+, but also the decline in licensing revenues as shows and movies are pulled in for its own streaming services. Those losses have been estimated at $150 million annually, which Disney obviously expects to not just wipe out but turn into larger revenue generators via its own streaming services.

Takeaway #5: Investment in Parks Grows.Disney’s capital expenditures on parks and resorts grew by 31 percent versus the same quarter in the previous year.

Takeaway #6: Deadpool Will Continue as R-Rated.As MarketWatchand others reported, Disney Chairman and CEO Bob Iger made clear that Deadpoolwould continue as an R-rated venture, and other more adult-oriented properties, such as via the Fox acquisition, will continue, though with Disney being careful with branding.

Finally, on an amusing note, when asked about marketing needs regarding the opening of Star Warsattractions this year, Iger commented, “I think I should just tweet 'It's opening' and that would be enough.”

Ray Keating is the editor, publisher and economist for DisneyBizJournal.com, and author of the Pastor Stephen Grant novels, with the three latest books being Reagan Country: A Pastor Stephen Grant NovelHeroes and Villains: A Pastor Stephen Grant Short Storyand Shifting Sands: A Pastor Stephen Grant Short Story. He can be contacted at raykeating@keatingreports.com.

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