The Walt Disney Company released their earnings report for the fourth quarter of their fiscal year on Thursday afternoon and, with the exception of their Parks and Resorts division, the company saw widespread declines in revenues and operating income.
Here is how Disney fared overall, as compared to its performance in 2016’s fourth quarter as well as the last complete fiscal year:
- Revenues for the quarter felt a 3% drop, from $13.14 billion in 2016’s final quarter to $12.78 billion.
- Revenues for the fiscal year totaled $55.14 billion, a 1% drop from last year’s $55.63 billion.
- Operating income fell from $3.18 billion for last year’s fourth quarter to $2.81 this year, an 11% decline.
- Total operating income for fiscal year was $14.78 billion, 6% less than 2016’s $15.72 billion.
Although Disney saw drops throughout most of their departments, CEO Bob Iger spoke optimistically about the company’s profitability in the coming fiscal year. As stated by Iger,
“No other entertainment company is better equipped to navigate the ever-evolving media landscape, thanks to our unparalleled collection of brands and franchises and our ability to leverage IP across our entire company. We look forward to launching our first direct-to-consumer streaming service in the new year, and we will continue to invest for the future and take the smart risks required to deliver shareholder value.”
Before we jump into next year’s plans, here is a look at how the individual areas of The Walt Disney Co. shaped out for the fourth quarter and fiscal year.
Fourth quarter revenues dropped 3% from last year, down from $5.66 billion to $5.57 billion. Fiscal year revenues dropped just 1%, from $23.69 billion to $23.51 billion.
Fourth quarter operating income dropped 12% from last year, down from $1.67 billion to $1.48 billion. Fiscal year operating income dropped 11%, from $7.76 billion to $6.9 billion.
The most substantial change for Disney’s cable network division was a 10% decrease in operating income for the full fiscal year. Disney explained the reduction by citing a lessening in Freeform viewership, leading to a drop in ad revenue.
ESPN suffered a decrease in viewership but helped make up for it with higher rates. The lower advertising revenue, as well as higher programming costs, were balance out with higher affiliate revenue. These factors kept ESPN in a similar position as last year. As for the rise in programming costs, Disney stated,
“The programming cost increase was driven by contractual rate increases for NFL, college sports and MLB, partially offset by the absence of costs for Olympics programming internationally and the World Cup of Hockey.”
Although not noticeably different for the full year, the fourth quarter saw Broadcasting take significant hits in comparison to 2016. It saw an 11% drop in revenue and a 15% drop in operating income which seemed to be due to lower viewership, a lack of significant titles, and the absence of the Emmy Awards.
Parks and Resorts
The only area where Disney managed to thrive this year, Parks and Resorts saw a 6% increase in revenues (to $4.67 billion) and a 7% increase in operating income (to $746 million) compared to the same time last year. Total yearly revenues was up 8% (to $18.42 billion), while yearly operating costs saw a boost of 14% (to $3.77 billion).
While parks overall managed to remain successful, this is mainly due to international properties. Walt Disney World and Disney Cruise Line suffered from Hurricane Irma and her aftermath, lowering the domestic park performance, although higher ticket prices and attendance at Disneyland Resort lessened the blow. As for Disney’s overseas success, here is their summation:
“Results at our international operations were due to growth at Disneyland Paris and Shanghai Disney Resort. The improvement at Disneyland Paris reflected increases in attendance, guest spending and occupied room nights, partially offset by higher costs, driven by the 25th Anniversary celebration, and a loss from its 50% joint venture interest in Villages Nature. Guest spending growth was primarily due to higher average ticket prices and food and beverage spending. The increase at Shanghai Disney Resort was due to attendance growth and lower marketing costs, partially offset by lower average ticket prices. The decrease in marketing costs reflected costs associated with the grand opening of Shanghai Disney Resort in the prior year. “
This division saw major losses compared both to last year’s fourth quarter and the total fiscal year. Revenues saw a decline of 21% for the quarter (to $1.43 billion) and an 11% decline for the year (to $8.38 billion). Operating costs were a full 43% lower than 2016’s fourth quarter (down to $218 million) and 13% lower when comparing year-to-year (down to $2.36 billion).
Although most explanations for the drops center around comparisons of films released in each year’s fourth quarter (Cars 3 vs. 2016’s Finding Dory for example), Disney also cites “…higher film cost impairments, lower TV/ SVOD distribution results and a lower revenue share from the Consumer Products & Interactive Media segment.”
Consumer Products and Interactive Media
Lastly, Consumer Products and Interactive Media saw drops from 2016’s fourth quarter of 6% (to $1.22 billion) for revenues and 12% (to $373 million) for operating income. Year-end comparisons showed a decrease of 13% (to $4.83 billion) for revenues and 11% (to $1.74 billion) for operating income.
Disney provided a brief explanation for the loss:
“Lower results at our merchandise licensing business were primarily due to a decrease in earned licensing revenues, higher third-party royalty expense and an unfavorable impact from foreign currency translation. Lower earned licensing revenues were due to decreased sales of merchandise based on Star Wars, Frozen and Finding Dory, partially offset by increases from merchandise based on Cars and SpiderMan.”
Next Fiscal Year Announcements
During Disney’s fourth quarter earnings live conference call Disney executives, including CEO Bob Iger, revealed strategies and future considerations for the upcoming fiscal year. Here are a few notable topics mentioned:
- The consolidation of BAMTech will adversely affect Disney’s cable operating income for the first three quarters of next year.
- The company’s top priority will be direct-to-consumer initiatives.
- The first DTC product will be ESPN Plus, a redesigned ESPN app allowing users to stream channels, find scores and highlights, and subscribe for additional coverage and live sporting events.
- Disney’s streaming service for Disney, Pixar, Marvel, Star Wars, and exclusive feature films will be released late 2019. Disney is currently working on a live action Star Wars series, as well as a High School Musical series, a Monsters Inc. series, and Marvel series for the service.
- After the upcoming slate of Marvel, Pixar, and Star Wars movies was promoted it was announce that Rian Johnson would be behind a brand new Star Wars trilogy.
Source: The Walt Disney Company