Disney Tops Forecasts
February 6, 2019
The Walt Disney Company reported
quarterly earnings for its first fiscal quarter ended December 29, 2018.
Diluted earnings per share (EPS) for the quarter decreased 36% to $1.86
from $2.91 in the prior-year quarter. Excluding certain items affecting
comparability, EPS for the quarter decreased 3% to $1.84 from $1.89 in
the prior-year quarter.
The firm's earnings of $1.84 per
share was more than the $1.55 per share which was forecast. Disney noted
revenue of $15.30 billion with only $15.14 billion expected.
“After a solid first quarter, with
diluted EPS of $1.86, we look forward to the transformative year ahead,
including the successful completion of our 21st Century Fox acquisition
and the launch of our Disney+ streaming service,” said Robert A. Iger,
Chairman and Chief Executive Officer, The Walt Disney Company. “Building
a robust direct-to-consumer business is our top priority, and we
continue to invest in exceptional content and innovative technology to
drive our success in this space.”
Cable Networks revenues for the quarter increased 4% to $4.0 billion and
operating income decreased 6% to $743 million. Lower operating income
was due to a decrease at ESPN and Freeform, partially offset by an
increase at the Disney Channels.
The decrease at ESPN was due to higher programming costs, partially
offset by affiliate revenue growth and an increase in advertising
revenue. The increase in programming costs was due to contractual rate
increases for key sports programming and a shift in the mix of College
Football Playoff (CFP) games. Two semi-final games and one “host” game
were aired in the current quarter, whereas three host games aired in the
prior-year quarter. Semi-final games generally have a higher cost than
host games. Affiliate revenue growth reflected contractual rate
increases, partially offset by a decline in subscribers. Higher
advertising revenue was due to an increase in rates and impressions. The
increase in impressions was due to higher units delivered, partially
offset by lower average viewership. Advertising revenue benefited from
the shift in mix of CFP games.
Lower operating income at Freeform was due to decreases in advertising
revenue and program sales, partially offset by lower programming costs.
The decrease in advertising revenue was due to lower average viewership,
partially offset by higher rates.
Growth at the Disney Channels was due to higher income from program
sales and an increase in affiliate revenue. Affiliate revenue growth was
due to contractual rate increases, partially offset by a decline in
subscribers. Program sales included a benefit from the adoption of a new
revenue accounting standard (ASC 606).
Broadcasting revenues for the quarter increased 12% to $1.9 billion and
operating income increased 40% to $408 million. The increase in
operating income was due to affiliate revenue growth, increased
advertising revenue and higher program sales, partially offset by higher
Growth in affiliate revenue was due to contractual rate increases and an
impact from the adoption of ASC 606. The increase in advertising revenue
was due to higher network rates and an increase in political advertising
at the owned television stations, partially offset by lower network
average viewership. The increase in program sales was due to higher
revenues from programs licensed to Hulu and the sale of The Punisher in
the current quarter. The programming cost increase was driven by higher
primetime costs, including the impact of The Conners and Dancing with
the Stars in the current quarter.
Equity in the Income of Investees
Equity in the income of investees increased from $159 million in the
prior-year quarter to $179 million in the current quarter due to higher
income from A+E Television Networks driven by lower marketing and
Parks, Experiences & Consumer Products
Parks, Experiences, & Consumer Products revenues for the quarter
increased 5% to $6.8 billion and segment operating income increased 10%
to $2.2 billion. Operating income growth for the quarter was due to an
increase at our domestic theme parks and resorts, partially offset by a
decrease from licensing activities.
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
Operating income at our international parks and resorts was down
modestly compared to the prior-year quarter as lower results at Shanghai
Disney Resort and Disneyland Paris were largely offset by an increase at
Hong Kong Disneyland Resort. Lower operating income at Shanghai Disney
Resort was primarily due to lower attendance and higher costs, partially
offset by increased guest spending. Lower operating income at Disneyland
Paris was due to increased costs, partially offset by higher average
ticket prices. At Hong Kong Disneyland Resort, the increase in operating
income was driven by increased guest spending and higher occupied room
Lower income from licensing activities was driven by a decrease in
revenue from products based on Star Wars and Cars and higher third-party
royalty expense, partially offset by an increase from minimum guarantee
shortfall recognition, higher revenues from products based on Spider-Man
and an increase in licensee settlements. Higher minimum guarantee
shortfall recognition was due to an impact from the adoption of ASC 606
Entertainment revenues for the quarter decreased 27% to $1.8 billion and
segment operating income decreased 63% to $309 million. Lower operating
income was due to a decrease in theatrical distribution results,
partially offset by growth in TV/SVOD distribution.
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.
Growth in TV/SVOD distribution results was due to the performance of
Incredibles 2 and Avengers: Infinity War in the current quarter compared
to Cars 3 and Guardians of the Galaxy Vol. 2 in the prior-year quarter,
more title availabilities, and to a lesser extent, an impact from the
adoption of ASC 606 (see below).
Direct-to-Consumer & International
Direct-to-Consumer & International revenues for the quarter decreased 1%
to $918 million and segment operating loss increased from $42 million to
$136 million. Revenues reflected a 4% decrease from an unfavorable
foreign currency impact. The increase in operating loss was due to the
investment ramp-up in ESPN+, which was launched in April 2018, a loss
from streaming technology services and costs associated with the
upcoming launch of Disney+, partially offset by an increase at our
International Channels and a lower equity loss from our investment in
The increase at our International Channels was due to lower costs,
affiliate revenue growth and higher program sales (all on a constant
currency basis), partially offset by an unfavorable foreign currency
Hulu results reflected increases in subscription and advertising
revenue, partially offset by higher programming costs.
ADOPTION OF NEW REVENUE RECOGNITION ACCOUNTING STANDARD
At the beginning of fiscal 2019, the Company adopted a new revenue
recognition accounting standard (ASC 606). Results for fiscal 2019 are
presented under ASC 606, while prior period amounts continue to be
reported in accordance with our historic accounting.
The current quarter includes a $115 million favorable impact on segment
operating income from the ASC 606 adoption. The most significant
benefits were $56 million at Media Networks and $34 million at Parks,
Experiences & Consumer Products, both of which reflected a change in the
timing of revenue recognition on contracts with minimum guarantees.