The Walt Disney Company announced its first-quarter financial results, revealing a 5% increase in overall revenue to $26 billion. This growth was largely driven by a strong performance in its theme parks and streaming businesses. However, the company faced challenges, including a significant impact from a YouTube TV blackout and increased operating costs in its entertainment division.
Key Takeaways
- Disney's Q1 revenue reached $26 billion, a 5% increase year-over-year.
- Theme parks and streaming services fueled growth, with the experiences sector hitting a record $10 billion in revenue.
- A 15-day YouTube TV blackout cost the company $110 million in operating income.
- Entertainment division operating income declined by 35% due to acquisition, marketing, and production costs.
- Despite beating Wall Street estimates, Disney shares saw a 5.7% drop.
Experiences Sector Drives Record Revenue
Disney's experiences sector, which includes theme parks, the cruise line, and the Aulani resort in Hawaii, reported a record $10 billion in revenue for the quarter. This marks a significant achievement for the company's leisure and entertainment segment.
Domestic theme parks saw a 1% rise in attendance. Guests also spent more during their visits. The launch of the new Disney Destiny cruise ship in November and an expanded capacity at sea contributed to this success.
Fact:
The experiences sector's operating income increased by 6% compared to the previous year, reaching $3.3 billion.
International theme parks also experienced growth. Higher attendance and increased guest spending led to a 2% rise in operating income for these locations.
Streaming and Box Office Bolster Entertainment
The entertainment division saw its revenue climb by 7% to $11.6 billion. This growth was boosted by successful box office releases like "Zootopia 2" and "Avatar: Fire and Ash." Both films achieved billion-dollar status.
Streaming services also contributed positively, with revenue increasing by 11% to $5.3 billion. The streaming operating income grew by approximately $190 million, reaching $450 million. This resulted in an 8.4% operating margin for the quarter within the streaming segment.
However, this positive performance was offset by higher costs. The acquisition of a majority stake in FuboTV, along with increased marketing and production expenses for theatrical distribution and streaming services, impacted profitability. The entertainment sector’s operating income ultimately declined by 35% to $1.1 billion.
Challenges in Sports and Overall Operating Income
The company faced a significant challenge in its sports division. A contract dispute with YouTube TV led to a nearly 15-day blackout of Disney channels. This temporary suspension had a substantial financial impact.
The YouTube TV blackout resulted in a $110 million toll on the operating income of Disney's sports division. Overall, the sports division's operating income was down 23% to $191 million. Sports revenue for the quarter totaled $4.9 billion, a 1% increase year-over-year.
"I’m incredibly proud of all that we’ve accomplished over the past three years to set Disney on the path of continued growth," said Disney Chief Executive Bob Iger during a call with analysts. "I’m inspired and energized by the opportunities ahead of this wonderful company."
Despite a 10% boost in advertising revenue for the sports division, this could not fully compensate for increased programming and production costs. Higher contractual rates for college football and WWE programming were key factors.
Context:
The dip in operating income from the entertainment sector, combined with the sports division's challenges, contributed to a 9% decrease in the company's total segment operating income, which fell to $4.6 billion.
Future Outlook and Strategic Shifts
Looking ahead, Disney anticipates modest operating income growth in its experiences division for the fiscal second quarter. This expectation is due to several factors, including pre-launch costs for the new cruise ship and an upcoming "Frozen"-themed land at Disneyland Paris.
The company is also monitoring "international visitation headwinds at our domestic parks." To counter this, Disney has shifted its marketing and promotional efforts towards a more domestic audience. Hugh Johnston, senior executive vice president and chief financial officer, confirmed this strategic adjustment.
In Florida, Walt Disney World has seen a 5% increase in room booking rates. This increase is weighted towards the latter half of the year, suggesting potential future growth for the parks.
Analyst Insight:
Brian Mulberry, senior client portfolio manager at Zacks Investment Management, stated, "In the short term, Disney needs to get costs back under control."
Disney's overall income before income taxes for the quarter was nearly $3.7 billion, a modest 1% increase. Earnings per share were $1.34, a slight decrease from $1.40 in the same period last year. While the company surpassed Wall Street's revenue and earnings per share estimates, its shares dropped by 5.7% to $106.39 early Monday morning, indicating investor concerns.
- The competition between Disney's streaming, movie, and experiences sectors is now a healthy driver of profitability.
- The company's board of directors may name Bob Iger's successor soon, with theme parks chief Josh D'Amaro considered a leading contender.
