Disney Exceeds Quarterly Earnings Expectations on 'Star Wars' Mania

Courtesy of Lucasfilm Ltd.

The company's largest segment, media networks, posts a 6 percent decline in operating income and the stock falls in after-hours trading. ESPN sees an "uptick" in subscribers.

While most eyes were on the effects, or lack thereof, of cord-cutting, Walt Disney surprised Wall Street by reporting stellar earnings courtesy of Star Wars: The Force Awakens.

Disney posted earnings of $1.63 per share on $15.24 billion in revenue, numbers that beat the forecasts of most Wall Street analysts who expected a profit of $1.45 per share on revenue of $14.7 billion.

Net profit for the giant entertainment conglomerate was $2.9 billion for the company's fiscal first quarter, which ended Jan. 2.

"Driven by the phenomenal success of Star Wars, we delivered the highest quarterly earnings in the history of our company," said CEO Bob Iger.

Most of Disney's money is made from its media networks segment, home of the mighty ESPN, and investors were dismayed late last year to learn that the leader in sports television lost 7 million subscribers in the past two years, ending its fiscal year with 92 million. This time around, Iger calmed nerves by disclosing an "uptick" in ESPN subscribers in the most recent quarter.

Investors are also nervous about the rising cost of sports rights, which can dent ESPN's margins. Indeed, despite impressive results for the company at large, media networks posted a 6 percent decline in operating income, with higher programming costs at ESPN taking much of the blame.

The culprit for subscriber losses in general, of course, are the twin phenomena of cord-cutting and skinny bundles, the former referring to consumers who have ditched cable television all together, preferring streaming services such as Netflix, and the latter meaning folks who downsized to a few dozen channels to save money on their cable bills.

Iger said the subscriber losses previously reported at ESPN were overblown, and much of the decline in recent years was due to consumers gravitating to skinny bundles that didn't initially include ESPN, though now some do, in particular Dish's Sling TV.

 "I think you have to conclude that sports is very, very popular in this country," Iger said.

Assumptions that ESPN or cable networks in general are "cratering" are "ridiculous," Iger added.

Disney stock has been heading south ever since the company last reported earnings in August and spooked Wall Street about cord-cutting. Since then, it is down 24 percent. On Tuesday, the stock was up fractionally to $92.32, but after the closing bell it was falling 5 percent, likely due to lackluster results in the media networks segment.

Despite the uptick in ESPN subscribers, Disney said Tuesday that its media networks business on-whole suffered "a decline in subscribers," but it was not specific. Revenue at media networks, though, still managed to climb 8 percent to $6.3 billion as affiliate fees and ad rates increased.

Star Wars: The Force Awakens was a major driver of financials as the film has taken in a massive $2 billion worldwide. Even though the movie opened Dec. 25 and the quarter Disney reported ended a week later, the pic helped the company exceed expectations.

Where Disney was expected to succeed with Star Wars this quarter was in merchandising, since toys and other goodies related to the Christmas release have been available since prior to Black Friday in November, typically one of the busiest shopping days of the year. On Monday, in fact, Hasbro reported better-than-expected financials on both its top and bottom lines for its Christmas quarter, in large part thanks to Star Wars toys.

Consumer products and interactive media at Disney posted an 8 percent rise in revenue to $1.9 billion and a 23 percent rise in operating income to $860 million.

Parks and resorts scored a 9 percent increase in revenue to $4.3 billion and 22 percent gain in operating income to $981 million.

Studio entertainment, though, appeared to be the biggest beneficiary of the latest Star Wars movie. Revenue there rose 46 percent to $2.7 billion while operating income surged 86 percent to $1 billion.

Asked for some specific guidance going forward, Iger demured. "You should think nothing but happy thoughts about this company," the CEO told analysts Tuesday.

Disney also disclosed Tuesday that the final price tag for YouTube network Maker Studios was $675 million following the completion of the company's earn-out period. First announced in March, 2014, the $500 million acquisition of the digital-media startup at one time had the potential to cost Disney up to $950 million if it had met certain performance targets.

Natalie Jarvey contributed to this report.

Email: Paul.Bond@THR.com