Disney’s Strong Earnings Report and Outlook

 by Ray Keating

News/Analysis

DisneyBizJournal.com

February 7, 2024

 

Disney surprised the markets with a strong earnings report today, along with a boatload of announcements. Indeed, the first quarter 2024 earnings report was one to be appreciated by stockholders.

Let’s get to what I see as the key takeaways, and there are a good many.

 

First, diluted earnings per share (EPS) excluding certain items jumped by 23 percent versus the same period last year – from $0.99 to a $1.22. For good measure, Disney offered some rare earnings guidance, projecting that full year fiscal 2024 EPS excluding certain items would increase by at least 20 percent versus 2023, to approximately $4.60.

 

Second, the company announced a 50 percent increase in its semi-annual dividend to $0.45 per share, which will be distributed in July.

 

Third, Disney also announced a stock buyback of $3 billion during the current fiscal year, with further buybacks seemingly slated for the future.

 

Fourth, the company was bullish on its cost savings and efficiency undertakings, noting that it would hit or exceed the previously announced $7.5 billion cost savings for the year.

 

Fifth, the company confirmed, once more, that it was on track to arrive at streaming profitability by the end of the current fiscal year. CFO Hugh Johnston pointed out that the objective on the streaming front is to achieve double-digit margins. According to Johnston, the path to such levels of profitability lies with growing subscriptions via paid sharing (which got a good deal of attention), lower churn, and international growth, as well as pricing and assorted efficiencies. Iger noted that the company is “working toward” what Netflix has achieved. 

 

In terms of streaming subscriptions, Hulu saw subscribers increase by 1.2 million in the quarter. Meanwhile, as largely expected, Disney+ subscriptions decreased by 1.3 million, but Disney also projected Disney+ core subscribers to increase by 5.5 million to 6 million in the second quarter.

 

Sixth, Disney announced that it entered into a partnership with Epic Games, with a $1.5 billion equity investment in the gaming enterprise. This partnership will result in the creation of a Disney Universe existing alongside and interconnected with Epic’s Fortnite. Disney CEO Bob Iger noted the need for the company to tap into demographic trends regarding gaming, and the opportunity to leverage the company’s intellectual property (IP) accordingly. He also highlighted the opportunity in this Disney digital world to purchase digital goods and perhaps in the future physical goods.

 

Seventh, since Taylor Swift seems to be everywhere, Disney announced that her “Eras Tour” concert film will come exclusively to Disney+ on March 15, with additional content not in the original release.

 

Eighth, it was noted that 70 percent of the announced plan to invest $60 billion on parks over the coming decade will go to increased capacity, with every park location and the high seas being affected. Annual announcements are expected to come from the company each year starting in 2025.

 

Ninth, a full-slate ESPN standalone streaming option will be launched in August 2025 or the fall of that year. This ESPN streaming option will include all ESPN programming, and will integrate betting, e-commerce, stats and personalization. In addition, the previously announced streaming sports joint venture with Fox and Warner Bros. Discovery is scheduled to launch this fall.

 

Tenth, all parks were profitable in the quarter, with growth in international parks particularly strong. And it was repeated that the company is expecting to “turbocharge growth” in the parks. The cruise line got notable attention in terms of expanding opportunities. It was noted in the earnings report: “At Experiences, we generated all-time records in revenue, operating income, and operating margin in the first quarter…” As for key sources of profitability on the Experiences front for the quarter, four were highlighted: Shanghai Disneyland, Hong Kong Disneyland, the Disney cruise line, and the latest Spider-Man video game.

 

Eleventh, on the movies and franchise fronts, it was announced that the planned Moana television show was being transformed into a theatrically released movie, set for November of this year. Meanwhile, it’s hard to say if something should or should not be read into the fact that the only Star Wars movie specifically mentioned by Iger was the one featuring The Mandalorian and Grogu. For good measure, Iger noted the slowdown in production on the Marvel front, declaring that there would a “focus on stronger franchises” going forward. In addition, the forthcoming Kingdom of the Planet of the Apes movie received a fair amount of attention. It has a release date of May 10, 2024.

Iger’s assessment was summed up in a statement in the earnings report: “Just one year ago, we outlined an ambitious plan to return The Walt Disney Company to a period of sustained growth and shareholder value creation. Our strong performance this past quarter demonstrates we have turned the corner and entered a new era for our company, focused on fortifying ESPN for the future, building streaming into a profitable growth business, reinvigorating our film studios, and turbocharging growth in our parks and experiences… Looking at the renewed strength of all of our businesses this quarter – from Sports, to Entertainment, to Experiences – we believe the stage is now set for significant growth and success, including ample opportunity to increase shareholder returns as our earnings and free cash flow continue to grow.”

 

Finally, regarding the activist investor challenges facing the company with the upcoming April 3 shareholder meeting, when asked about it on CNBC, Iger declared that those individuals didn’t understand the Disney business, nor the Disney brand. He also spoke of the company “acting with a sense of urgency,” and that “all of us are optimistic.” When it came to streaming, Johnston also used the word “urgency,” that is, there is an “urgency to get to a good sustainable business.”

 

Why all the “urgency” talk? That’s what happens when activist investors lurk heading into a shareholder meeting, and people have been focusing on the under-performance of your stock.

 

In after-hours trading, at the time of this writing, Disney’s stock price was up by more than six percent.

 

__________

 

Ray Keating is the editor, publisher and economist for DisneyBizJournal.com; and author of the Pastor Stephen Grant thrillers and mysteries, the Alliance of Saint Michael novels, and assorted nonfiction books. Have Ray Keating speak your group, business, school, church, or organization. Email him at raykeating@keatingreports.com.

 

The views expressed here are his own – after all, no one else should be held responsible for this stuff, right?

 

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Disney Earnings Decline, Halts Dividend, Experiences Disney+ Gains, and Announces Re-Opening for Shanghai Park

by Ray Keating

News/Analysis

DisneyBizJournal.com

May 5, 2020

In its second quarter 2020 earnings statement and related call today, The Walt Disney Company provided some interesting news, including a decline in earnings, halting its dividend during the first half of the year, subscriber gains at Disney+ and the announcement of Shanghai Disney re-opening on May 11.

Let’s dig into some of these items.

First, the company’s diluted earnings per share (EPS), excluding certain items affecting comparability, dropped by 63 percent in the second quarter compared to the same quarter last year ($0.60 versus $1.61). That also was a miss compared to market expectations – again $0.60 compared to expectations for $0.89.

Second, Disney announced that it was suspending its dividend for the first half of the year, and would make assessments on the future of the dividend in the next six months. In addition, Disney is reducing its capital expenditures to deal with the current crisis.

Third, Disney+ continues to gain subscribers, with the number of total subscribers climbing to 54.5 million as of May 4. That’s up from the 50 million-plus announced in early April.

Fourth, it was announced that Shanghai Disneyland would re-open on May 11. That will feature advance reservations (i.e., dated tickets), guest capacity and density controls, and meeting assorted health and safety guidelines, including masks being worn by both guests and employees. Specifically, the Shanghai park’s daily attendance would be limited, starting out, to 30 percent of the park’s typical daily attendance, according to government orders. That would mean 24,000 guests, given that daily attendance usually runs at 80,000. However, Disney CEO Bob Chapek noted that the park will open below what is allowed by the government to make sure all is running well, and attendance would build up over a few weeks to the government-allowed level.

Fifth, during the second quarter, the COVID-19 crisis cost the company $1.4 billion in operating income, with $1 billion of that attributed to the parks (i.e., “Parks, Experiences and Products”). In terms of further breaking down those numbers, this reflects the domestic parks being closed for two weeks out of the quarter (which ended at the close of March), yet the domestic parks accounted for roughly half of that $1 billion in lost income, with the other parks, the cruise line, and so on accounting for the other half. That breakdown obviously points to larger losses in income during the current quarter given that the domestic parks will be closed for much or all of the quarter.

Sixth, looking ahead at re-opening parks, Chapek noted that parks will only be opened once it is determined that they will make a positive net contribution to the company’s income. No guidance was offered on the opening of any of the parks other than Shanghai.

Seventh, it was confirmed that the Disney cruise line will be the last line of business to return. And while it was noted that the cruise line’s contribution to overall operating income is relatively small, its return on investment is high, and it ranks extremely high in terms of guest satisfaction and guests returning.

In the end, both Chapek and Disney Executive Chairman Bob Iger emphasized the company’s resiliency and ability to come back strong after the crisis. Iger noted that the company will get through this, “but it will take some time.” Disney’s stock price was down in after-hours trading.

Ray Keating is the editor, publisher and economist for DisneyBizJournal.com, and author of The Disney Planner 2020: The TO DO List Solution (now available at a deep discount) and the Pastor Stephen Grant novels. He can be contacted at  raykeating@keatingreports.com.

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6 Key Takeaways on Disney’s Earnings Report

by Ray Keating

Analysis

DisneyBizJournal.com

November 8, 2019

After the market closed on November 7, The Walt Disney Company presented its earnings report for its fourth quarter and fiscal year ended on September 28, 2019. The big takeaway was an increase in revenue, along with an increase in expenses largely related to its forthcoming Disney+ streaming service.

Consider 6 key takeaways from the Disney report:

1. Streaming Focus. CEO Bob Iger made quite clear, once again, that streaming is the company’s major emphasis looking ahead: “We’ve spent the last few years completely transforming The Walt Disney Company to focus the resources and immense creativity across the entire company on delivering an extraordinary direct-to-consumer experience, and we’re excited for the launch of Disney+ on November 12.”

2. Revenue and Earnings. Total revenues for the fourth quarter grew by 34 percent compared to the same quarter last year, and were up by 17 percent for the entire fiscal year. Meanwhile, earnings per share in the fourth quarter, excluding certain items, declined 28 percent to $1.07. However, that beat market expectations.

3. Media Networks Growth. Fourth quarter revenue increased by 22 percent in its media networks division, which includes ESPN. Operating income was off 3 percent, however.

4. Streaming Outlook. Iger served up assorted information on the company’s three streaming services.

For example, Iger noted: “I'm pleased to announce that as of today, ESPN Plus has over 3.5 million paid subscribers...”

He also noted the role that FX will play going forward with Hulu: “FX on Hulu will include all seasons and more than 40 FX series and will offer episodes of current and new FX series immediately after the air on the linear network. Additionally, FX will produce original series exclusively for FX on Hulu, starting with four new series in 2020; Devs from Alex Garland, Mrs. America starring Cate Blanchett, A Teacher starring Kate Mara, and The Old Man starring Jeff Bridges and John Lithgow. This is a great way to expand the FX brand and an important step for Hulu as it adds original content to compete more aggressively with new and legacy DTC platforms. The FX presence on Hulu combined with original production from our ABC and Fox Television studios and our Fox Movie studios including Searchlight will greatly enhance Hulu's consumer proposition.”

As for Disney+, Iger noted: “At launch, Disney Plus users will have immediate access to more than 500 movies including all of our beloved titles and more than 7,500 episodes of library television content, including 30 seasons of Simpsons. By year five, this growing collection will include more than 620 movies and more than 10,000 television episodes along with countless shorts and features. As planned, we first concede this service all creative engines across our Company including the teams of Disney, Pixar, Marvel, Lucasfilm, National Geographic, Disney Channel, and Walt Disney Television studios are focused on creating compelling original content for Disney Plus.”

He added: “At launch, will offer 10 original movies, specials and series exclusive to the platform, including the Mandalorian. The first live-action Star Wars series is unlike anything audiences seen before on any platform and it's a strong indication of the quality in the storytelling that will define Disney Plus. We recently screened a significant portion of the first episode of the Mandalorian compressed and the extremely positive reaction is driving tremendous buzz around this extraordinary series ahead of its debut on Disney Plus. Within a year of launch, the amount of original content on Disney Plus will increase to more than 45 series, specials and movies and will expand to more than 60 original projects per year by year-five.”

5. Parks Performance. Fourth quarter revenue rose by 8 percent in its parks, experiences and products division. Operating income grew by 17 percent.

Christine Mary McCarthy, Senior Executive Vice President & Chief Financial Officer, reported, “Operating income at domestic parks and experiences was up 13% driven by growth at Disneyland on higher guest spending and an increase at Disney Vacation Club.” She also noted, “Attendance at our domestic parks was comparable to the fourth quarter last year, and reflects the impact of Hurricane Dorian, which we estimate adversely impacted attendance growth by about 1 percentage point. Per capita guest spending was up 5% on higher admissions, merchandise and food and beverage spending. Per room spending at our domestic hotels was up 2%, and occupancy of 85% with comparable to the fourth quarter last year.”

Regarding Disneyland, Disney reported: “Growth at Disneyland Resort was primarily due to higher guest spending, partially offset by expenses associated with Star Wars: Galaxy’s Edge, which opened on May 31, and, to a lesser extent, lower attendance. Guest spending growth was primarily due to increases in average ticket prices and higher food, beverage and merchandise spending.”

As for Walt Disney World, it was noted: “Results at Walt Disney World Resort were comparable to the prior-year quarter, despite the adverse impact of Hurricane Dorian in the current quarter. Increases in guest spending and, to a lesser extent, occupied room nights and attendance were offset by higher costs. Higher costs were driven by costs associated with Star Wars: Galaxy’s Edge, which opened on August 29, and cost inflation. Guest spending growth was primarily due to increased food, beverage and merchandise spending and higher average ticket prices.”

Also, park revenues were negatively affected for Hong Kong Disneyland due to the unrest and protests in Hong Kong.

Looking ahead, McCarthy said, “On the domestic front, we expect Q1 revenue growth at our domestic parks and resorts to benefit from a full quarter of Star Wars Galaxy's Edge at Walt Disney World and the December opening of Rise of the Resistance at Walt Disney World. However, the revenue growth will be partially offset by meaningful cost growth driven primarily by operational expenses associated with Galaxy's Edge and higher labor expense due to the impact of higher wages under new collective bargaining agreements. So far this quarter, domestic resort reservations are comparable to prior year. We believe some guests are deferring to Disney Land and Walt Disney World until the complete opening of Galaxy's Edge at those respective locations. I'll note that awareness and intend to visit strong; booked rates at our domestic hotels are currently pacing up 5% versus this time last year.”

6. Studio Growth. Fourth quarter revenues jumped by 52 percent for studio entertainment. Operating income moved up by 79 percent. The Lion King, Toy Story 4 and Aladdin contributed to revenue and operating income increases.

Right now, everything points to this coming Tuesday, November 12, and the big launch of Disney+. That’s where so much of the future of the company lies.

Ray Keating is the editor, publisher and economist for DisneyBizJournal.com, and author of the Pastor Stephen Grant novels. He can be contacted at  raykeating@keatingreports.com.