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Disney (DIS) Q2 Earnings & Revenues Top, Black Panther Roars
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The Walt Disney Company (DIS - Free Report) delivered second-quarter fiscal 2018 adjusted earnings of $1.84 that beat the Zacks Consensus Estimate by 16 cents and surged 23% from the year-ago quarter.
Revenues increased 9.1% from the year-ago quarter to $14.55 billion that comfortably surpassed the consensus mark of $14.23 billion.
Services (86.1% of revenues) increased 9% year over year to $12.52 billion. Products (13.9% of revenues) jumped 9.7% from the year-ago quarter to $2.03 billion.
However, shares declined 1.2% in after-hour trading. Disney has lost 5.3% on a year-to-date basis compared with industry’s decline of 1.8%.
ESPN Hurt by Higher Programming Costs
Media Networks (42.2% of revenues) revenues inched up 3.2% year over year to $6.14 billion. Cable Networks climbed 4.7% to $4.25 billion while broadcasting revenues remained almost flat at $1.89 billion.
Media Networks’ affiliate revenues increased 5% due to growth at both cable and broadcasting. Higher rates (up 7 points) were partially offset by decline in subscriber count (down 3 points).
Freeform revenues were negatively impacted by lower advertising revenues reflecting a decrease in average viewership.
ESPN benefited from an increase in affiliate as well as advertising revenues. Affiliate revenue growth reflected improvement in contractual rate, partially offset by a declining subscriber count.
ESPN advertising revenues increased 3% due to higher rates, which benefited from the shift of the College Football Playoff (“CFP”) bowl games (positive impact of 5 percentage points). However, lower impressions due to fewer units delivered and a decrease in average viewership hurt advertising revenue growth.
The Walt Disney Company Price, Consensus and EPS Surprise
Broadcasting revenues benefited from higher affiliate revenues (gained from an increase in contractual rates), which was offset by lower advertising revenue growth.
Advertising revenues were hurt by fewer network impressions, which were primarily attributed to decrease in average viewership. Higher network rates benefited revenue growth partially.
Media Networks’ operating income declined 6.3% year over year to $2.08 billion. Cable Networks operating income decreased 4% to $1.73 billion while broadcasting operating income remained almost flat at $343 million.
Cable Networks operating income was hurt by BAMTech loss and decreases at Freeform and ESPN.
BAMTech loss reflects ongoing investments in their technology platform including costs associated with ESPN+, which Disney launched recently. The company announced the acquisition of UFC events rights starting in 2019 for five years.
The shift in CFP bowl games timing significantly increased programming costs that hurt ESPN’s profitability. Management stated that semi-final games (two in the reported quarter) generally have higher programming costs than host games (one in the reported quarter).
Equity in the income of investees decreased from $88 million in the year-ago quarter to $13 million due to higher losses from Hulu, primarily attributable to continued investments in programming and marketing.
Easter holiday Drives Parks & Resorts
Parks & Resorts (33.5% of revenues) increased 13.5% year over year to $4.88 billion.
As anticipated, the segment revenues benefited from shift in the timing of the Easter holiday. The reported quarter included one week of the Easter holiday as compared with the year-ago quarter that had none.
Parks & Resorts operating income surged 27.2% to $954 million. The shift in Easter timing added $47 million to operating income, which was partially offset by the adverse impact of the 14-day dry-dock of the Disney Magic, which negatively impacted Disney Cruise Line's operating income by about $20 million.
Higher guest attendance at Walt Disney World Resort and higher sponsorship revenues drove results. Guest spending increased due to higher average ticket prices, merchandise and beverage spending and a surge in room rates.
Per capita spending and per room spending at domestic hotels increased 6% and 12%, respectively. Occupancy 2 percentage points to 90%. Attendance at Disney’s domestic parks increased 5% and reflects a 2 percentage point benefit from the timing of the Easter holiday.
Meanwhile, international parks and resorts results benefited from growth at Disneyland Paris, and higher occupied room nights and attendance at Hong Kong Disneyland Resort.
Disneyland Paris benefited from its 25th anniversary celebration that drove higher guest spending, attendance, and hotel occupancy.
However, lower attendance, cost inflation and an unfavorable foreign currency impact hurt Shanghai Disney Resort results. Disney recently launched Toy Story Land at Shanghai Disneyland.
Black Panther Surpassed Expectations
Studio Entertainment segment (16.9% of revenues) revenues increased 21% to $2.45 billion. Segment operating income surged 29.1% to $847 million.
The impressive results were driven by robust performance from Marvel title Black Panther, which has garnered almost $1.3 billion in box-office to-date. However, another title A Wrinkle in Time disappointed.
Operating income growth was driven by strong growth in theatrical, home entertainment and TV/SVOD distribution, partially offset by higher film cost impairments.
Home entertainment benefited from higher average net effective pricing and an increase in unit sales driven by strong demand for Star Wars: The Last Jedi. Other significant titles included Thor: Ragnarok and Coco in the reported quarter.
TV/SVOD distribution results benefited from higher international growth and the domestic free television sale of Star Wars: The Force Awakens in the reported quarter.
Finally, Consumer Products & Interactive Media (7.4% of revenues) revenues increased 1.9% year over year to $1.08 billion. Segment operating income dipped 3.5% to $354 million due to lower comparable retail store sales and an unfavorable foreign currency impact.
Free Cash Flow Grew
Disney generated free cash flow of $3.46 billion in the reported quarter compared with $1.26 billion in the previous quarter.
The media behemoth repurchased 12.2 million shares for $1.3 billion during the quarter.
Outlook
Disney now expects BAMTech to hurt Media Networks’ fiscal 2018 operating income by $180 million year over year, $50 million higher than previous estimate, primarily due to increased investment in ESPN+. Management expects $100 million negative impact in the third quarter.
The company also stated that ESPN's cash ad sales are currently pacing down 1% year over year in the current quarter.
Moreover, at Parks & Resorts segment domestic resort reservations are declining 4% year over year, reflecting reduced room inventory due to conversions and ongoing room refurbishments. Additionally, booked rates are pacing up 8%.
Long-term earnings growth rate for Glu, GoPro and NutriSystem is currently pegged at 15%, 10% and 16.7%, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Disney (DIS) Q2 Earnings & Revenues Top, Black Panther Roars
The Walt Disney Company (DIS - Free Report) delivered second-quarter fiscal 2018 adjusted earnings of $1.84 that beat the Zacks Consensus Estimate by 16 cents and surged 23% from the year-ago quarter.
Revenues increased 9.1% from the year-ago quarter to $14.55 billion that comfortably surpassed the consensus mark of $14.23 billion.
Services (86.1% of revenues) increased 9% year over year to $12.52 billion. Products (13.9% of revenues) jumped 9.7% from the year-ago quarter to $2.03 billion.
However, shares declined 1.2% in after-hour trading. Disney has lost 5.3% on a year-to-date basis compared with industry’s decline of 1.8%.
ESPN Hurt by Higher Programming Costs
Media Networks (42.2% of revenues) revenues inched up 3.2% year over year to $6.14 billion. Cable Networks climbed 4.7% to $4.25 billion while broadcasting revenues remained almost flat at $1.89 billion.
Media Networks’ affiliate revenues increased 5% due to growth at both cable and broadcasting. Higher rates (up 7 points) were partially offset by decline in subscriber count (down 3 points).
Freeform revenues were negatively impacted by lower advertising revenues reflecting a decrease in average viewership.
ESPN benefited from an increase in affiliate as well as advertising revenues. Affiliate revenue growth reflected improvement in contractual rate, partially offset by a declining subscriber count.
ESPN advertising revenues increased 3% due to higher rates, which benefited from the shift of the College Football Playoff (“CFP”) bowl games (positive impact of 5 percentage points). However, lower impressions due to fewer units delivered and a decrease in average viewership hurt advertising revenue growth.
The Walt Disney Company Price, Consensus and EPS Surprise
The Walt Disney Company Price, Consensus and EPS Surprise | The Walt Disney Company Quote
Broadcasting revenues benefited from higher affiliate revenues (gained from an increase in contractual rates), which was offset by lower advertising revenue growth.
Advertising revenues were hurt by fewer network impressions, which were primarily attributed to decrease in average viewership. Higher network rates benefited revenue growth partially.
Media Networks’ operating income declined 6.3% year over year to $2.08 billion. Cable Networks operating income decreased 4% to $1.73 billion while broadcasting operating income remained almost flat at $343 million.
Cable Networks operating income was hurt by BAMTech loss and decreases at Freeform and ESPN.
BAMTech loss reflects ongoing investments in their technology platform including costs associated with ESPN+, which Disney launched recently. The company announced the acquisition of UFC events rights starting in 2019 for five years.
The shift in CFP bowl games timing significantly increased programming costs that hurt ESPN’s profitability. Management stated that semi-final games (two in the reported quarter) generally have higher programming costs than host games (one in the reported quarter).
Equity in the income of investees decreased from $88 million in the year-ago quarter to $13 million due to higher losses from Hulu, primarily attributable to continued investments in programming and marketing.
Easter holiday Drives Parks & Resorts
Parks & Resorts (33.5% of revenues) increased 13.5% year over year to $4.88 billion.
As anticipated, the segment revenues benefited from shift in the timing of the Easter holiday. The reported quarter included one week of the Easter holiday as compared with the year-ago quarter that had none.
Parks & Resorts operating income surged 27.2% to $954 million. The shift in Easter timing added $47 million to operating income, which was partially offset by the adverse impact of the 14-day dry-dock of the Disney Magic, which negatively impacted Disney Cruise Line's operating income by about $20 million.
Higher guest attendance at Walt Disney World Resort and higher sponsorship revenues drove results. Guest spending increased due to higher average ticket prices, merchandise and beverage spending and a surge in room rates.
Per capita spending and per room spending at domestic hotels increased 6% and 12%, respectively. Occupancy 2 percentage points to 90%. Attendance at Disney’s domestic parks increased 5% and reflects a 2 percentage point benefit from the timing of the Easter holiday.
Meanwhile, international parks and resorts results benefited from growth at Disneyland Paris, and higher occupied room nights and attendance at Hong Kong Disneyland Resort.
Disneyland Paris benefited from its 25th anniversary celebration that drove higher guest spending, attendance, and hotel occupancy.
However, lower attendance, cost inflation and an unfavorable foreign currency impact hurt Shanghai Disney Resort results. Disney recently launched Toy Story Land at Shanghai Disneyland.
Black Panther Surpassed Expectations
Studio Entertainment segment (16.9% of revenues) revenues increased 21% to $2.45 billion. Segment operating income surged 29.1% to $847 million.
The impressive results were driven by robust performance from Marvel title Black Panther, which has garnered almost $1.3 billion in box-office to-date. However, another title A Wrinkle in Time disappointed.
Operating income growth was driven by strong growth in theatrical, home entertainment and TV/SVOD distribution, partially offset by higher film cost impairments.
Home entertainment benefited from higher average net effective pricing and an increase in unit sales driven by strong demand for Star Wars: The Last Jedi. Other significant titles included Thor: Ragnarok and Coco in the reported quarter.
TV/SVOD distribution results benefited from higher international growth and the domestic free television sale of Star Wars: The Force Awakens in the reported quarter.
Finally, Consumer Products & Interactive Media (7.4% of revenues) revenues increased 1.9% year over year to $1.08 billion. Segment operating income dipped 3.5% to $354 million due to lower comparable retail store sales and an unfavorable foreign currency impact.
Free Cash Flow Grew
Disney generated free cash flow of $3.46 billion in the reported quarter compared with $1.26 billion in the previous quarter.
The media behemoth repurchased 12.2 million shares for $1.3 billion during the quarter.
Outlook
Disney now expects BAMTech to hurt Media Networks’ fiscal 2018 operating income by $180 million year over year, $50 million higher than previous estimate, primarily due to increased investment in ESPN+. Management expects $100 million negative impact in the third quarter.
The company also stated that ESPN's cash ad sales are currently pacing down 1% year over year in the current quarter.
Moreover, at Parks & Resorts segment domestic resort reservations are declining 4% year over year, reflecting reduced room inventory due to conversions and ongoing room refurbishments. Additionally, booked rates are pacing up 8%.
Zacks Rank & Stocks to Consider
Currently, Disney carries a Zacks Rank #3 (Hold).
Glu Mobile , GoPro (GPRO - Free Report) and NutriSystem are stocks worth considering in the broad consumer discretionary sector. All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term earnings growth rate for Glu, GoPro and NutriSystem is currently pegged at 15%, 10% and 16.7%, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>