Disney’s 1st Quarter Earnings Report
Today in MickeyBlog News, we discuss the first quarter earnings report for The Walt Disney Company. And I’ll tell you upfront. The song largely remains the same. Disney’s Parks & Resorts division is where all the magic happens.
The first thing to point out is that we’re talking about the first fiscal quarter for Disney, which explains why we have precise numbers the first week of February. The timeframe for this earnings report is from October 1st through December 30th. Obviously, the holiday season is tremendous for parts of Disney’s global empire such as the merchandising, parks, and movies divisions. The problem with corporate reports is that they have a way of making good news sound like bad news and vice versa. I’ll try to cut through the nonsense and add a common-sense element for you.
During the first quarter, Disney earned $15.35 billion. The headlines indicate that they fell short of expectations. Analysts projected $15.45 billion, which means Disney absorbed some negative headlines over $100 million, a relatively paltry sum.
Ignoring the fact that analysts were fractionally too optimistic for now, Disney’s earnings reflect solid growth from 2017. The first quarter of last year included revenue of $14.78 billion. That’s growth of 3.9 percent year-over-year. Disney also excluded some information that could have made their numbers look even stronger, particularly a one-time $1.6 billion tax incentive. In other words, Disney made a lot more money at the start of 2018 compared to 2017.
The numbers reflect this healthy quarter. Earnings per share increased a staggering 88 percent year-over-year from $1.55 to $2.91. Even without the tax benefit, earnings went up by a solid 22 percent. Per-share earnings were $1.89 without factoring in the tax savings. Disney CEO Robert Iger was understandably thrilled about the overall health of the company.
Again, Disney’s corporate empire breaks down into four branches. The Parks & Resorts division is the most important of them these days due to its sustained run of financial excellence. Mickey Travels knows just how well Disney runs its theme parks, and average consumers agree. The numbers seemingly rise constantly.
For the first quarter, Parks & Resort earned $5.154 billion, up 13 percent from 2016. I shouldn’t need to tell you that a 60+ year old business shouldn’t post double-digit increases on a consistent basis. Somehow, Disney’s theme parks manage just that, though.
Iger points out that operating income soared by 21 percent year-over-year. He stressed that the key factors were North American theme parks and unexpected strength at Disneyland Paris, which is currently celebrating its 25th anniversary. Given that Disney now entirely owns the French park, those gains may become a part of the status quo moving forward. In other words, Disney has potentially secured one of the core weaknesses on its asset sheet. I cannot stress enough just how strong the Parks & Resorts division is now.
Why the Parks Did So Well
One of the contributing factors to North American growth was the success of Pandora – The World of Avatar. Iger explicitly described it as positively impacting overall park attendance. Overall, traffic was up 6 percent, with a couple of record-setting performances.
2017 was the best year ever for Disney’s Animal Kingdom. More importantly, Walt Disney World broke its own record for total attendance. Frankly, that should have been the headline for every major news organization reporting on Disney’s earnings.
The other park numbers are equally impressive. The average customer spent seven percent more per visit last year. Iger attributes this to marginally higher ticket prices, increased food and beverage sales, and higher merchandising revenue. Effectively, guests spent more in all phases of a Disney theme park visit.
Occupancy rates at official Disney resorts also went up 91 percent, and Iger also mentioned anecdotally that the second quarter is pacing well, too. With occupancy rates becoming an issue, you should contact MickeyTravels now before your summer plans collapse due to sold out rooms. To wit, Iger states, “Booked rates are pacing up 13%, which reflects our strategy of improving the guest experience through better load-balancing of attendance throughout the year.” Yes, the rumors are true. Disney doesn’t have an offseason anymore.
The Other Three Core Businesses
Disney’s other three brands were almost completely stagnant year-over-year. In the case of one of the industries, that’s phenomenal news for the company. I’m speaking of Media Networks aka the television division. Much has been made of ESPN’s financial struggles in the cord cutting era. Rumors of the cable channel’s demise remain largely exaggerated, though.
The Media Networks division grossed $6.243 billion, marginally up from last year’s $6.233 billion. For all the negative headlines, you may expect this division to be in freefall, but it’s not at all. Analysts are worried about the long term health of the company while largely ignoring the formidable nature of Disney’s largely consistent earnings reports.
As for the other two divisions, each one fell ever so slightly. Studio Entertainment aka the film division dropped from $2.52 billion to $2.504 billion, which is basically the amount by which Star Wars: The Last Jedi failed to match expectations. Had it done better overseas, Studio Entertainment would have enjoyed growth year-over-year. Even with that minor disappointment, the difference is only one percent.
The spillover effect of Star Wars underperforming struck the merchandising division. Consumer Products & Interactive Media two percent declined from $1.476 billion to $1.45 billion. A lot of smart people have expressed concerns that Disney’s overexposing Star Wars. Since I’m not a huge fan (sorry!), I don’t have a dog in that fight. The numbers across divisions suggest that that the flagship is flagging right now, though.
As was the case the last time, the other two divisions dragged down the overall bottom line for Disney’s quarter. The Media Networks division gained ever so slightly and the Parks & Resorts division was up huge. Without the theme park revenue, however, Disney would have experienced a loss this quarter across the other three branches.
Disney’s not worried about Studio Entertainment or Consumer Products, though. They have Black Panther waiting in the wings, and it’s poised to elevate both branches. The film’s currently tracking to become the strongest debut from a new comic book IP in Marvel history. So, you don’t have to worry about Disney’s second quarter results. They should be fabulous.
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