Disney Quarterly Earnings Exceed Wall Street Expectations

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Walt Disney CEO Bob Iger

The company, led by CEO Bob Iger, posted strong gains in its theme parks and consumers products units.

The Walt Disney Company on Tuesday reported improved financials for its fiscal second quarter that exceeded Wall Street expectations.

The entertainment conglomerate, led by chairman and CEO Bob Iger, posted an earnings improvement of 10 percent to $2.11 billion, or $1.23 per share, compared with $1.92 billion, or $1.08 per share, in the year-ago period. Wall Street had predicted earnings of $1.10 per share. Revenue rose 7 percent to $12.46 billion.

While Disney shares quickly shot higher, exceeding a 52-week high, the stock didn't hold the gains and was about flat in morning trading. The conglomerate reported its earnings prior to Wall Street's opening bell on Tuesday.

During a conference call with analysts, Iger spoke of a "very deliberate" plan for the Dec. 18 release of Star Wars: Episode VII — The Force Awakens. He said he wants to avoid "too much, too soon" as the studio introduces the franchise to new audiences in China and elsewhere.

Most consumer products will roll out a few months before the movie opens, though video games will come sooner, and he said there's "a huge opportunity" in theme parks.

"We've been overwhelmed with interest," Iger said of Star Wars.

As for earnings details, segment operating income rose 4 percent, driven by an 86 percent increase at the conglomerate's interactive unit, a 32 percent gain in consumer products and a 24 percent improvement in theme parks. Those gains were partly offset by a 10 percent decline in studio entertainment operating income and a 2 percent drop at the company's media networks business.

Disney's studio unit was widely expected to post weaker results than in the year-ago period, which was buoyed by the huge success of Frozen. Disney said decreases in domestic home entertainment and international theatrical distribution "reflected the performance of Big Hero 6 in the current quarter compared to Frozen in the prior-year quarter."

Studio entertainment revenue for the latest quarter dropped 6 percent to $1.7 billion, with operating income at $427 million. 

Quarterly consumer products results grew amid an "increase at our merchandise licensing business due to the performance of merchandise based on Frozen and, to a lesser extent, The Avengers," the company said.

Media networks revenue rose 13 percent to $5.8 billion, but operating income decreased 2 percent to $2.1 billion. Cable networks profit fell 9 percent to $1.8 billion due to a decrease at ESPN, "driven by higher programming and production costs, partially offset by growth in affiliate and advertising revenues." Results at Disney Channels and ABC Family were relatively flat.

Broadcasting operating profit jumped 90 percent to $302 million with an increase in program sales driven by the sale of Marvel's Daredevil and higher sales of Lost and Once Upon a Time, partially offset by the sale of Wife Swap in the prior-year quarter. The increase in advertising revenue was due to higher primetime ratings and rates.

Iger on Tuesday was also asked to address skinny cable TV bundles, he didn't seem to worry that the trend would harm Disney any time soon. Consumers are learning there are "hidden costs" associated with skinny bundles, he said. "The jury is still out on a lot of this."

He also said the company sees further opportunity in streaming media but also acknowledged challenges to the traditional TV ad model.

"There's no question that we're seeing a new advertising reality here, because money definitely has migrated out of traditional media into new media, which is one of the reasons we  have shown such an interest in new media."

He said about 16 percent of Disney's revenue this year is advertising generated. "Our exposure to these changes is less than a lot of the other media companies."

Iger was also asked if Disney would launch its own direct-to-consumer streaming product, and he didn't dismiss the idea.

"With these channels and brands, ESPN, ABC, Disney, maybe even down the road something related to Star Wars and Marvel, we do have the ability as a company to take product -- specifically filmed entertainment, television and movies -- directly to consumers, and we have some development underway to do just that," he said.

Stifel Nicolaus analyst Benjamin Mogil wrote in a preview report: "Investors will largely focus on broadcast and cable network ad trends and ratings but more important in our view will be commentary on how the company is faring as 'skinny' packages become more prominent. We view their anchor position on Sling TV as positive but are interested in any commentary they may have about whether or not these are new cord members or existing customers trading down in service."

Twitter: @georgszalai