Disney’s Fiscal Third Quarter 2018 Earnings Summary
Today, I finally get to do something that I’ve been looking forward to doing for a year now. You see, I recently celebrated my first anniversary as a MickeyBlog writer. One of my first articles was this piece, the fiscal third quarter 2017 earnings for The Walt Disney Company. I’ve written three more of them since then, but this is the first one that I can use as a comparison to show how much Disney evolves each year. Without further ado (but a bit of sentimentality), here’s the fiscal third quarter 2018 earnings report for The Walt Disney Company.
History Repeats Itself
Here is my quote from last year’s article: “Wall Street panicked a bit after Disney released its financials for the calendar second-quarter/fiscal third-quarter.” Humorously, the same statement is true today. Once again, it reflects the erratic madness of stock movements rather than any issues with Disney’s financial performance. In fact, Disney’s third quarter earnings are tremendous.
Let’s start with the big numbers. Overall revenue increased seven percent to $15.228 billion. Through three total quarters of their fiscal year, they’ve averaged more than $15 billion, a historically unprecedented hot streak for the company. Disney’s operating income also improved five percent to a shade under $4.2 billion.
The negative headlines stem from something beyond Disney’s control. Wall Street estimates were too optimistic, as Disney’s earnings per share was $1.87 compared to incorrect estimates of $1.95. I’ve never understood why it’s the company’s fault when someone else is wrong about revenue projections. Similarly, estimates pegged Disney at $15.34 billion, meaning that they’re getting dinged by analysts for falling $112 million short of an outsider’s best guess.
As a Disney fan, you shouldn’t care about any of the negatives. All that matters here is that Disney’s shares are profitable once more, returning you $1.87 for each one you own. To a larger point, the strength of the Mouse House’s financial position has never been clearer.
Everything Is Awesome (Yes, I Know That’s Not Disney)
Let’s circle back to overall revenue for a moment. For fiscal 2017’s third quarter, revenue totaled $14.23 billion. In other words, Disney increased almost exactly one billion dollars year-over-year. Few companies on the planet are even capable of that sort of explosive growth.
For Disney, the expansion was largely incremental. Their Media Networks gained $290 million from last year; Parks and Resorts improved by $299 million; and studio entertainment gained the most with $485 million. You may recall that Disney recently restructured, which means that some of these comparisons aren’t quite apples to apples.
I mention this as I discuss the “new” Consumer Products & Interactive Media Division. It’s a reshuffling of a couple of old divisions along with the addition of the new BAMTech business items. By Disney’s calculations, the old parts grossed $1.085 billion last year. During the third quarter of 2018, they fell eight percent to $1.001 billion.
Disney didn’t itemize the differences, but they did explain that the third quarter last year benefitted from Spider-Man and Cars merchandising sales. Each of them had a movie presence in 2017 that was lacking this year. Executives added that they’ll see some benefit from the new Avengers film during the rest of fiscal 2018, but it wasn’t enough to compensate for those losses. That’s legitimately the closest thing to bad news that Disney faced during the quarter.
Let’s Talk Theme Parks!
Let’s be honest. You’re reading this because you love Disney’s theme parks. Well, I have great news for you. From a financial perspective, the parks are in the best shape that they’ve ever been in. Revenue for this division tallied $5.2 billion. Yes, theme parks are roughly a third of Disney’s overall bottom line these days. And business at the parks is gooooood.
Operating income spiked 15 percent to $1.3 billion, making it the most lucrative of Disney’s core businesses during the quarter. The company attributed these gains to several factors, but the big ones are readily apparent. Guest spending was up a lot, while operating expenses only increased slightly. Disney also spent less on marketing during the quarter, which makes the gains more remarkable.
You’re likely wondering how much the introduction of new themed lands at Disney California Adventure and Disney’s Hollywood Studios impacted these results. The answer is very little. The quarter ended on June 30th, and you may recognize that as the date that Toy Story Land opened. Meanwhile, Pixar Pier was only a week old at that point.
Corporate officials explained that the core business improved for a couple of hidden reasons. The Disney Fantasy had more operating dates than the previous year, when it had been dry-docked. In China, both Disney theme parks improved significantly from 2017. And attendance was up overall at the parks. More people at the parks means more money for Disney.
An odd quirk of the quarter is that the numbers easily could have been better. Disney pointed out that the Easter holiday calendar configuration wasn’t as beneficial as 2017. Last year’s numbers were artificially inflated by the extra dates while this year’s revenue totals are deflated. It may seem like a little thing, but it means tens of millions of dollars to Disney’s bottom line.
The Entertainment Divisions
Disney has two primary entertainment divisions, Studio Entertainment and Media Networks. I’ll close with a quick discussion of each one since they’ve been topic points over the last several years.
Most notably, the media has (correctly) chronicled the decline of cable television as a form of media consumption. Analysts have feared Disney would get hit the hardest since they earn the most from their cable channels. While the situation isn’t ideal, Disney continues to exceed expectations in this area.
Their cable network revenues increased two percent to $4.2 billion. Operating income did decline to $1.4 billion. That’s a great number in isolation, but it aptly reflects the oddity of the situation. Disney’s paying more for similar results, a trend that’s expected to continue. It’s the driving impetus behind the company’s recent introduction of ESPN+ and the upcoming streaming service that analysts are calling Disneyflix.
Speaking of Disneyflix, the company will populate the service with its proprietary movie catalog. Some of the blockbuster films through 2018 have existing licenses with Netflix, though. Disney would like to get those back since they’re such strong performers. The fiscal quarter confirms this statement.
Studio Entertainment absolutely crushed it from April to June. This division’s $2.878 billion is more than several competing studios will manage for the year! The $708 million in operating income borders on found money for Disney. The revenue is a 20 percent increase while the operating income is up 11 percent. It’s absolutely staggering growth year-over-year.
The growth is easy to explain. Avengers: Infinity War, the most successful Disney film ever, and The Incredibles 2, the most successful Pixar film ever, both fell during this quarter. You can imagine how much something historic like that will skew the bottom line. Even with the moderate disappointment of Solo: A Star Wars Story, Disney’s third quarter for Studio Entertainment is the greatest in the studio’s history. It might be THE greatest for any studio ever.
Given the above, you can understand why negative headlines about Disney’s fiscal third quarter are comical. It’s a mature stock from one of the most stable, financially sound companies on the planet. And I don’t care if The Lego Movie coined the phrase. Everything IS awesome at The Walt Disney Company right now.
On a side note, since it is my one-year anniversary, I’d like to extend my gratitude to the owners and operators of MickeyBlog for this wonderful website!