Disney’s Spectacular 2nd Quarter Results for 2019
The Walt Disney Company recently released its quarterly earnings report for the second quarter of 2019. Let’s open up the ledger and see how happy everyone is inside the boardroom at the Happiest Place on Earth.
Thanks, Fox!
During their last update, Disney executives warned everyone that this fiscal quarter would see a drop from 2018’s numbers. They believed that the revenue increase caused by blockbuster movies like Black Panther was impossible to overcome. Disney’s going so strong right now that even their own leadership group underestimates them.
Earnings for the fiscal second quarter were $14.922 billion, a $374 million increase from this quarter in 2018. Part of that total is a bit misleading. The last 11 days of the second quarter included revenue from newly attained Fox assets. The transaction wasn’t finalized until right at the end of the quarter. Those earnings totaled…$373 million. Yes, Disney would have been up exactly $1 million year-over-year if not for the Fox purchase.
Now, you should take two things from this information. The first is that Disney STILL would have seen a modest increase in 2019 despite having to overcome their over-performing in 2018. That number that seemed outlandish and misleading to CEO Robert Iger and his team a few months ago is now the baseline for reasonable second-quarter expectations.
The second thought is that Disney’s Fox acquisition makes perfect sense when you see the numbers this way. Eleven days is about 1/8th of a fiscal quarter. At a rate of $373 million every 11 days, Disney would have earned roughly $3 billion in revenue from the former Fox assets during a regular quarter. That’s a pace of $12 billion a year.
Now, it’s far too early to expect such revenue at that pace. I’m merely extrapolating based on the information that we have thus far. Disney later stated that they took on a great deal of debt during this purchase. Their debt portfolio is now $52 billion, up from $18 billion prior to the purchase. The revenue gained from the former Fox assets is integral to Disney’s plan to lessen that total quickly.
At the risk of boring you with more numbers, here’s how dramatically those Fox assets impacted Wall Street’s perception of Disney as a company. The Mouse House is currently listed with a market cap of $241 billion, give or take a bit for random fluctuation. The Stock price has reached as high as $134 recently. At the start of March, it was under $113, and the market cap was right at $169 billion.
You can see the value of those assets when you look at Disney’s newfound market strength. For the body of two years, the stock bounced around the $100 mark. It’s now more than 30 percent stronger. Assuming that Disney can pay down that debt safely promptly, they’ll see nothing but positives from the Fox acquisition.
The Numbers at the Parks
Let’s take a look at the core businesses of Disney. One of them won’t surprise you while another will.
You won’t be shocking to learn that theme park attendance is stronger than ever. Disney’s Parks & Resorts division topped $6 billion in the fiscal second quarter for the first time ever. Its $6.169 billion is an improvement of five percent from 2018. Last year’s $5.903 billion had been the record, which shows the steady growth of this division in recent years.
Disney’s theme park attendance was up only one percent. That’s by design. Park officials would prefer to keep attendance growth static. They want to earn more money in other ways. And that’s precisely what happened during the second quarter. Guests paid four percent more per capita. They spent more money on food and merchandise at the parks.
More importantly, Disney’s American resorts claimed 93 percent capacity during the quarter. That’s three percent higher than during the fiscal first quarter. More importantly, it’s the best occupancy rate that they’ve had since I’ve been tracking this for MickeyBlog. These numbers will only increase in the coming months due to the impending arrival of Star Wars: Galaxy’s Edge. Guests will spend more, and hotel rooms will approach maximum occupancy during the next two quarters.
Disney by Division
The surprising performance is in the Direct to Consumer & International division. This segment is relatively new and has underachieved to date. There’s a reasonable explanation for it. This division is just getting ramped up for the impending arrival of Disney+. But it was better this quarter.
Direct to Consumer & International grossed $955 million, an incredible 15 percent improvement from 2018. The explanation is an amusing one to non-gamers. The release of Kingdom Hearts 3 is almost single-handedly responsible for the gains, at least according to Disney execs.
Iger and his team didn’t do a deep dive into the splits but did acknowledge this result is a one-off. The division will have another mediocre quarter next time before finally turning a corner when Disney+ arrives in December.
The Media Networks division is virtually unchanged from 2018. It earned $5.525 billion in 2019 as opposed to $5.508 billion last year. So, there is modest growth of $17 million, which doesn’t sound like much…until you remember that not counting the Fox stuff, Disney was only up $1 million for the quarter. So, without those modest gains, they’d actually be down a touch.
As expected, studio entertainment was down significantly. It fell 15 percent from $2.499 billion in 2018 to $2.134 billion this past quarter. The explanation is that perfect storm of Disney hits on video and Black Panther in theaters during the same timeframe in 2018. Even with Captain Marvel becoming one of the 25 biggest global blockbusters ever, 2019 couldn’t compete.
The funny thought here is the skew that we’ll see in 15 months. Avengers: Endgame is about to give Disney the biggest film quarter in the history of Hollywood. During the fiscal third quarter of 2020, this division will fall short of 2019 simply because it failed to have the number one box office hit ever.
The NEXT fiscal quarter write-up is going to be the best one that we’ve ever seen, though. In addition to Endgame, Disneyland will also have more than a month of Star Wars: Galaxy’s Edge in operation. It’s a Scrooge McDuck scenario. Iger’s going to jump into a mountain of gold coins.
