Disney's latest quarterly results have the Mouse family in awe — “Inside Out 2” boosted record earnings and the company's combined streaming business turned a profit for the first time.
However, there were some mixed feelings: Operating profit at Disney’s domestic theme parks fell 6% in the second quarter, and the company warned that continued weak demand could hurt the segment’s results “for the next few quarters.” Meanwhile, Disney’s television business, excluding ESPN, continued to decline.
Total revenue for the quarter rose 4% to $23.16 billion, and operating income rose 19% to $4.23 billion for the three months ended June 29 (Disney’s third quarter of fiscal 2024). Adjusted earnings per share for the quarter were $1.39, up 35% from $1.03 in the year-ago quarter. The results beat Wall Street expectations, with analysts on average expecting revenue of $23.07 billion and earnings per share of $1.19, per financial data provider LSEG.
“This was a strong quarter for Disney, driven by excellent results across our entertainment segments both at the box office and in DTC, where we achieved profitability across our combined streaming businesses for the first time and a quarter ahead of our previous guidance,” Disney CEO Bob Iger said in prepared remarks.
The success of Pixar's “Inside Out 2,” which became the highest-grossing animated film of all time, demonstrated “the renewed creative strength of our studios and led to strong outperformance” at Disney's theatrical unit, the company said. Since its release in mid-June, “Inside Out 2” has grossed $1.56 billion at the global box office.
According to Disney, the original Inside Out (2015) helped drive more than 1.3 million Disney+ subscribers during that period and generated more than 100 million views worldwide, thanks to the release of “Inside Out 2.” However, Disney+’s conversion rate remained high: In the U.S. and Canada, the company added 800,000 new subscribers to 54.8 million, while international Disney+ Core customers (excluding Disney+ Hotstar) fell by about 100,000 to 63.5 million. That compares with a gain of 6.3 million in the first three months of 2024 for Disney+ Core (helped by a deal with Charter to offer Disney+ to select Spectrum TV customers at no additional charge).
Disney’s direct-to-consumer business (including ESPN+) saw revenue rise 15% to $6.4 billion and swung to an operating income of $47 million compared to a loss of $512 million in the year-ago quarter. Reflecting the quarterly volatility, Disney’s direct-to-consumer entertainment segment (Disney+ and Hulu) posted an operating loss of $19 million (after a surprise profit in the first three months of the year) that more than offset ESPN+’s profit.
Looking ahead, the company expects improved streaming results in the fiscal fourth quarter, with both Entertainment DTC and ESPN+ expected to be profitable in the current quarter. The media group expects Disney+ Core subscribers to grow “modestly” in the fiscal fourth quarter, ahead of a price increase in October across nearly all U.S. streaming plans.
Disney’s entertainment segment operating income nearly tripled year-over-year in the June second quarter, to $1.2 billion, with the theatrical unit, buoyed by “Inside Out 2” and “Kingdom of the Planet of the Apes,” contributing $254 million to operating income (versus an operating loss of $112 million a year earlier). That helped offset lower ad sales at ABC and the rest of Disney’s linear TV business, where revenue fell 7% and operating income fell 6%.
In the June quarter, ESPN revenue rose 5% to $4.28 billion, and operating income increased 4%, while Star India’s operating loss widened to $314 million (from $216 million a year earlier), dragging Disney’s sports operating income down 6%. ESPN’s domestic advertising revenue also increased 17% year-over-year.
Overall, Disney forecast a positive end to the fiscal year: The company raised its full-year adjusted EPS growth target to 30% for the year ending September 2024, from 25% in its last earnings report.
In its theatrical segment, Disney expects fiscal fourth-quarter profitability to look “roughly similar to the third quarter” — helped by excellent results from Marvel’s summer blockbuster “Deadpool & Wolverine” — and forecasts profitability for the full fiscal year 2024.
Despite the “weaker third quarter performance” in Disney’s theme parks business, Iger said, “With our well-rounded and balanced portfolio of businesses, we are confident in our ability to continue driving earnings growth through our unique and strong set of assets.”
Disney said it expects “slower demand” in its domestic theme park business in the fiscal third quarter to impact the next few quarters. For the quarter ending in September, operating income for the Experiences segment is expected to decline by the “mid-single digits” compared to the prior year, “reflecting these underlying dynamics as well as the impacts at Disneyland Paris from lower normal consumer travel due to the Olympics, and some cyclical softening in China.”
So far, there has been no word on Disney’s succession plans. The board’s failure to choose a successor for Iger, whose contract runs through 2026, was a cornerstone of the failed proxy battle waged by activist investor Nelson Peltz.
