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Earnings Results: Disney produces best earnings and sales since before pandemic, stock pops 5% higher

The Walt Disney Co. reported its strongest sales and profit since before the COVID-19 pandemic began on Thursday, sending shares more than 5% higher in after-hours trading.

Disney
DIS,
+0.67%

reported fiscal third-quarter net income of $918 million, or 50 cents a share, compared with a loss of $2.61 a share in the year-ago quarter. After adjusting for restructuring costs, amortization and other effects, the company reported earnings of 80 cents a share, compared with 8 cents a share a year ago. Revenue improved to $17.02 billion from $11.78 billion a year ago.

Analysts surveyed by FactSet had expected adjusted net income of 55 cents a share on revenue of $16.8 billion. Shares jumped 5.6% in after-hours trading Thursday following the release of the results, after gaining 0.7% to $179.29 in the regular session.

Most of the focus during the COVID-19 pandemic has been on Disney’s streaming efforts. Disney+ subscribers increased to 116 million after Chief Executive Bob Chapek revealed it had reached 100 million milestone at the company’s annual shareholder meeting in March. Analysts on average expected 115.2 million subscribers at the end of the quarter, according to FactSet.

“We ended the third quarter in a strong position, and are pleased with the company’s trajectory as we grow our businesses amidst the ongoing challenges of the pandemic,” Chapek said in a statement announcing the results.

The streaming segment, which also includes international products, hauled in $4.26 billion in revenue, in line with analysts’ forecasts of $4.27 billion on average.

See also: Your streaming subscriptions reshaped Disney and turbocharged Netflix — now comes making more money off you

Disney had hoped that its theatrical and theme-park segments would bounce back as pandemic-related closures and limitations ended, but the spreading delta variant could hamper any rebound. Disney’s theme parks and product sales segment reported $4.34 billion in revenue as it slowly reopened in the U.S. and abroad, a spike from $1.07 billion a year ago. The average analyst estimate was $3.9 billion.

The movie business has adapted to the new reality, offering new releases for sale on Disney+ for an extra fee at the same time the movies go into theaters, but that has led to a fight with Marvel star Scarlett Johansson. Analysts have wondered if Disney will delay any coming releases to avoid having to rely on streaming instead of box-office revenue, as Sony Pictures did with a Marvel-affiliated movie earlier Thursday, a sequel to “Venom.”

Chapek laid out release dates for two coming movies — “Free Guy,” coming out Friday in theaters, and the studio’s next Marvel movie, “Shang-Chi and the Legend of the Ten Rings,” scheduled for September — suggesting that at least those will not be delayed. But he left open the possibility that there will be delays for later films.

“Distribution decisions are made on a film-by-film basis, based on global marketplace conditions, and consumer behavior,” Chapek said in a conference call. “We will continue to utilize all available options going forward, learn from insights gained with each release, and innovate accordingly, while always doing what we believe is in the best interest of the film and the best interest of the our constituents.”

“Nothing’s in stone because the marketplace is rapidly changing, but at some point, you’ve got to put a stake in the ground and say this is what we’re going to do and that’s where we ended up on … our next two titles out,” Chapek said in response to follow-up questions from an analyst.

The company’s theatrical segment, which also includes home-entertainment sales and licensing of content, reported revenue of $1.7 billion, down 23% from last year and trailing the average analyst estimate of $2.07 billion. “Cruella” was the only major new movie Disney launched in the quarter.

Read more: Disney faces more doubts as Delta variant prolongs pandemic fears

Disney’s largest segment by sales was its television networks, such as ESPN and ABC. That segment reported sales of $6.96 billion, up from $6.01 billion a year ago and topping the average analyst estimate of $6.65 billion.

Disney did not provide a forecast for its fiscal fourth quarter, but did give some commentary, including that ESPN’s early fourth-quarter performance has been strong despite competing with the coverage of the Tokyo Olympics, but she said that operating income in the television segment will decline year-over-year.

“Q4 to-date, domestic cash advertising revenue at ESPN is currently pacing above prior-year, but, bear in mind that this comparison is complicated by various COVID and timing impacts from the prior year,” Chief Financial Officer Christine McCarthy said in the conference call. “We’re not going to provide a forecast for the quarter, but the underlying sports ad marketplace remains strong for us, particularly in a quarter in which the Olympics were held.”

McCarthy also noted that, while Disney had said it didn’t expect to pay a dividend or repurchase shares in the first half of the year, the company would not jump back into investor return immediately.

“We do anticipate that both dividends and share repurchases will remain a part of our capital allocation strategy; however, for the time being, we don’t anticipate declaring a dividend or repurchasing shares until we return to a more normalized operating environment and our leverage is back to levels more consistent with a single-A credit rating,” McCarthy said.

“The mouse is roaring,” Markus Hansen, portfolio manager at Vontobel Asset Management, told MarketWatch. “Disney is going into 2022 in a solid direction.”

Disney’s shares are down 2% so far in 2021. The broader S&P 500 index
SPX,
+0.30%

has gained 18% this year.

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