Walt
Disney
shares were rising after the entertainment giant posted quarterly earnings that edged ahead of Wall Street’s estimates.
Results for the fiscal fourth quarter ended Sept. 30 included better-than-expected subscriber growth for its Disney+ streaming service.
The stock was up as much as 4% in premarket trading the morning after the report.
Disney posted revenue for the quarter of $21.2 billion, up 5% from the year ago quarter, and a little shy of Wall Street’s consensus estimate of $21.4 billion. Profits were 82 cents a share, up from 30 cents a year earlier and above the Street’s 71 cents; earnings from continuing operations were 14 cents, up from 9 cents in the year earlier period.
The company said it added nearly seven million core subscribers to Disney+ in the quarter, increasing the total to 112.6 million, and beating expectations by about three million subscribers.
The company said it now has 5.2 million subscribers for its ad-supported version of Disney+, with more than half of new domestic subscribers choosing the ad tier. Disney also said it doesn’t expect to focus on reducing password sharing until 2025. The company continues to expect streaming to reach profitability in the fourth quarter of fiscal 2024.
Disney posted revenue in its entertainment segment, which includes movies and television, of $9.5 billion, up 2% from a year earlier, and a little shy of Street estimates.
The sports segment, mostly ESPN, had revenue of $3.9 billion, flat with a year ago and in line with estimates. The experience segment, which includes theme parks, cruises, hotels, and licensed products, had revenue of $8.2 billion, up 13%, and above consensus at $7.8 billion.
The company also said that it remains focused on reducing costs, and now expects its “annualized efficiency target” to $7.5 billion, from $5.5 billion.
“Our results this quarter reflect the significant progress we’ve made over the past year,” CEO Robert Iger said in a statement. “While we still have work to do, these efforts have allowed us to move beyond this period of fixing and begin building our businesses again.”
For the December quarter, Wall Street has been projecting revenue of $24.2 billion, with profits of $1.15 a share.
On a conference call with analysts, Disney said that it expects capital expenditures in fiscal 2024 to be $6 billion, up $1 billion from 2023, in part tied to investments in three new cruise ships that will launch in 2025 and 2026. The company sees content spending for fiscal ’24 of $25 billion, down from $27 billion this year. Disney said that sports rights account for more than 40% of the total.
Disney interim CFO Kevin Lansberry said management will recommend to the board that the company resume paying a dividend before the end of the calendar year. He also said the company expects $8 billion in free cash flow in fiscal 2024.
For the full fiscal year, the company posted revenue of $88.9 billion, up 7%. That includes a 3% increase in the entertainment segment, to $40.6 billion, a 16% improvement in experiences, to $32.5 billion, with sports down 1% to $17.1 billion.
Walt Disney shares have been left out of this year’s rally, with the stock down 3% since the end of December. The company has been hurt by the combined effects of weaker results at ESPN, softer growth in the streaming sector, and the continued erosion of linear TV viewing.
Iger is under pressure to make big moves. He has said that the company would consider the sale of non-core assets, which could include high-profile properties like ABC. And the company needs to reset the future of ESPN, potentially with outside financial partners.
Disney investors are getting a first look this week at new Chief Financial Officer Hugh Johnston, who was named to the post on Monday. He replaces interim CFO Keivn Lansberry, who had been serving in the role since June following the departure of Christine McCarthy. Johnston joins Disney following a 34-year career at
PepsiCo
(PEP), where he had served most recently as CFO and vice chairman.
In a research note this week, Lightshed Partners analyst Richard Greenfield outlined a dozen strategic questions for Disney heading into the quarter. Some of those are focused on the future of ESPN—and the company’s stated plan to launch a direct-to-consumer version of the channel given the shrinking base of cable TV subscribers. The core issue for ESPN, Greenfield wrote, is that the cost of sports rights is rising faster than the related revenue.
Greenfield is also looking for some more information about Disney’s planned acquisition of
Comcast’s
(CMCSA) one third stake in Hulu. He wonders whether Disney will remain committed to Hulu + Live TV, the company’s internet-based cable replacement services which competes with Sling and YouTube TV.
Write to Eric J. Savitz at eric.savitz@barrons.com
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