Disney Falls Short of Earnings Expectations as ESPN Ad Sales Fall

Bob Iger - Getty - H 2016
Getty Images

Bob Iger - Getty - H 2016

Disney shares rose fractionally during regular trading Thursday but were dropping 3 percent after the closing bell.

The Walt Disney Co. earned $1.10 per share on revenue of $13.1 billion in its fiscal fourth quarter, falling short of the expectations of Wall Street — in part due to weakness at ESPN — and hurting the stock in after-hours trading.

The company was expected to earn $1.16 per share on $13.5 billion revenue.

The conglomerate's all-important media networks segment, where ESPN resides, was expected to show nearly $5.7 billion in revenue, and it met those expectations. Still, the company said ESPN suffered from lower advertising sales and declining affiliate revenue.

Disney shares rose fractionally during regular trading Thursday but were dropping 3 percent after the closing bell.

While movies like Finding Dory and Doctor Strange were hits, as was the recent opening of its theme park in Shanghai, Disney faced tough comparisons with past quarters that have included the likes of Frozen and Star Wars: The Force Awakens.

Still, the company's studio entertainment segment managed 2 percent revenue growth year-over year to $1.8 billion, but operating income there dropped 28 percent to $381 million as Pete's Dragon and Queen of Katwe disappointed at the box office. 

Operating income, though, fell across all of Disney's segments during the quarter, in part because there was an extra week reported last year compared to this one. Operating for media networks was off 8 percent, while it dropped 5 percent at both parks and resorts as well as consumer products and interactive media.

While Freeform was an area of growth for the media networks segment, the Disney Channels were not, due to decreased affiliate revenue and program sales.

In TV broadcasting, Scandal and Nashville suffered from lower sales, but revenue from Luke Cage, Quantico and Golden Girls was impressive.

Shanghai Disney Resort was a boost to the parks and resorts segment, while weakness at Disneyland Paris and Hong Kong Disney Resort dragged the unit down a bit. Since opening earlier this year, 4 million people have visited the Shanghai park so far.

Consumer products and interactive media benefited from products sold related to Finding Dory, though the segment was hurt from falling sales of Frozen gear and the abandonment of the Infinity video game.

For the entire fiscal year, Disney broke records, as has become the norm of late. Disney CEO Bob Iger boasted during a conference call that the company, in fact, enjoyed its sixth straight year of record financial results.

Even ESPN grew in fiscal 2016, and Iger said he expects that growth to continue, in part due to digital initiatives. Sub losses that harmed ESPN last year should abate with new offerings that are more "mobile friendly" than in the past, and a new digital product is in the works with the recent investment in BAMTech.

The exec said the movie studio has a "powerful upcoming slate" that include multiple Star Wars, Marvel and Pixar films.

He also said there's "a lot of premature speculation" about lower ratings for NFL games, saying some of that is due to competition from a thrilling baseball season and an intense presidential election that ended Tuesday with Donald Trump beating Hillary Clinton.

Iger also said the corporate tax rate should be reduced, saying the election of Trump could help in that regard. "We are no longer competitive with the rest of the world ... and that must be addressed, and it's possible that, given what's gone on this week, that that's likely to be addressed sooner rather than later, and that's obviously a good thing."

He continued: "It's also a good thing for markets and for most businesses that the transition is already off to what appears to be a fairly smooth start  ... It looks like there's cordiality, which we've not seen in a long time, and there's an attempt by both sides, with the incumbent and the president-elect, to approach this in a rational, cordial, effective and polite way."

He also added: "On the smooth transition front ... we've already prepared a bust of President-elect Trump to go into our Hall of the Presidents at Disney World."