UPDATED with comments from earnings call, after-hours trading. The Walt Disney Co. beat Wall Street’s earnings and revenue forecasts for its fourth quarter, thanks to a strong performance by the film studio.
The company reported adjusted per-share earnings of $1.48, topping analysts forecasts of $1.34 for the fiscal fourth quarter. It booked record revenues of $14.3 billion, exceeding Wall Street’s projections of $13.73 billion.
Investors sparked to the results, sending shares up more than 2% in after-hours trading. They had slumped in the latter stages of the regular trading day, shedding 1% to close at $116.
The film studio’s revenue jumped 50% in the quarter to $2.2 billion, buoyed by the box office success of Incredibles 2, which rang in more than $1.2 billion globally, and Ant-Man and the Wasp, at $622 million in worldwide ticket sales.
The media networks group, which includes broadcast and cable television, saw revenues rise 9% to nearly $6 billion in the quarter ending September 29. It reported an operating income of $1.5 billion that was impacted by losses associated with BAMtech, the technology powering Disney’s ESPN+ streaming service.
Theme parks also posted a 9% revenue gain in the quarter, up to $5 billion, which compared favorably to a year ago, when Hurricane Irma shut down Walt Disney World in Florida.
The only group to show decrease in income was the consumer products an interactive media unit, which reported an 8% drop in revenue to $1.1 billion. It blamed lower revenue from licensing.
During a conference call with analysts to discuss the financials, Disney CEO Robert Iger said the acquisition of 21st Century Fox’s entertainment assets would close in the first quarter. Fox has hedged a bit more, guiding toward a close sometime in the first half of 2019.
The Burbank entertainment giant won a bidding war with Comcast for Fox’s assets, which include the company’s film and television studios and Star India, and its stake in the streaming service Hulu. The deal already has won Justice Department approval, and earlier this week got a thumbs up from European antitrust regulators.
The acquisition will bring the Avatar and X-Men film franchises, and popular TV shows like The Simpsons, into the Mouse House, alongside Black Panther, The Incredibles and Black-ish. Disney already has announced which Fox television and film executives would be joining the Burbank entertainment colossus following the merger. Iger, in fact, lavished praise on several of them by name, not his norm during earnings calls. He gave Dana Walden, Peter Rice and John Landgraf shout-outs and predicted they would deliver a shot of energy to the overall TV efforts.
ESPN has “faced challenges with distribution” and subscriber erosion in recent years, Iger said, and Disney’s overall TV efforts in that span. The arriving Fox trio, on the other hand, is comprised of “executives who not only have a lot of experience but a lot of success under their belts.” They will be tasked with “creating a TV business that is designed to service not only the present but also the future of the combined entity,” developing programming for both linear and streaming platforms.
Disney’s streaming strategy continues to be a major focus for Wall Street. The company reported its ESPN+ streaming service had reached more than 1 million in the first five months. Investors will likely anticipate an update on that service, and more insight into plans for the Disney-branded streaming service, which launches late next year.
Hulu also proved a big topic on the call. Asked about his vision for the streaming service once Disney assumes 60% control of it (the first time any stakeholder will have a majority), Iger said Hulu is “attractive in many ways.” While the plan will be to have an “eye toward being fiscally responsible” to minority partners Comcast and WarnerMedia, he said “a lot more original programming” will be heading onto the service. He also called Hulu a “very strong play for advertisers” given the targeting capabilities of the streaming environment and the fact that audiences for off-net syndicated shows are typically 20 years younger than those for comparable broadcast series.
Veteran media analyst Michael Nathanson noted the difficulty in financial forecasting for Disney, because it’s not yet clear what changes the company might make to Fox’s content distribution strategy.
“Will Disney move all Fox movies (even R-rated content) off their global Pay 1 deals and put those titles in a Disney-branded OTT service? Will Disney move Fox’s syndicated off-network content (e.g. Family Guy, Modern Family) to an exclusive window on Hulu or Disney OTT?,” Nathanson wrote in a recent investor note. “These unknowns could swing results in a much more material way than any of the other well-discussed variables.”
Iger was pressed by analysts about one potential scenario: giving some theatricals an early showcase on the Disney-branded streaming service.
“With us, if it ain’t broke …” he said, leaving the rest of the saying unspoken, meaning no changes would be imminent. “We have a studio that is doing extremely well and a formula that is serving us extremely well,” he said. While he conceded that some titles could come online “a little bit sooner,” he affirmed, “we’re not looking to encroach on the theatrical window.”
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