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The Walt Disney Co. 3rd Quarter Earnings Report: Overall Growth, Short of Estimates

The Walt Disney Co. 3rd Quarter Earnings Report: Overall Growth, Short of Estimates 3rd-Quarter-Earnings-2018

The Walt Disney Company has just released their earnings report for the third fiscal quarter of 2018. This Q3, which ended on June 30th, saw significant growth in diluted earnings per share for the company as well as overall increases in revenues and segment operating income, yet still fell short of Wall Street estimates.

Chairman and CEO Bob Iger said in a statement,

We’re pleased with our results in the quarter, including a double-digit increase in earnings per share, and excited about the opportunities ahead for continued growth. Having earned the overwhelming support of shareholders, we are more enthusiastic about the 21st Century Fox acquisition than ever, and confident in our ability to fully leverage these assets along with our own incredible brands, franchises and businesses to drive significant value across the entire company.

This quarter’s earnings are broken down into the Walt Disney Company’s previous divisions, which were in place before a strategic reorganization in March that divided the company into the Parks, Experiences, and Consumer Products; Direct-to-Consumer and International; Media Networks; and Studio Entertainment divisions. Although already in place, Disney does not expect to begin financial reporting under the new structure until fiscal 2019.

Overall Earnings

Diluted earnings per share jumped a full 29% from last year’s 3rd quarter, from $1.51 to $1.95. Revenues for the company showed a 7% increase from last year, raising from $14.238 billion to $15.228 billion; operating income grew from $4.011 billion to $4.193 billion, a 5% boost.

Comparing the first 9 months of 2018 with the same time period last year, revenues rose 7%, operating income grew 4%, and diluted earnings per share increased a total of 50% over 2017.

  • Media Networks: 5% growth in revenues — 1% loss in operating income.
  • Parks and Resorts: 6% growth in revenues — 15% growth in operating income.
  • Studio Entertainment: 20% growth in revenues — 11% growth in operating income.
  • Consumer Products & Interactive Media: 8% loss in revenues — 10% loss in operating income.

Media Networks

The Media Networks division brought in $6.156 billion in revenues this quarter compared to 2017’s $5.866 billion, a 5% jump from 2017’s Q3. Their revenues for the entire fiscal year to date have increased 3%, from 2017’s $18.045 billion to this year’s $18.537 billion.

Segment operating income for the division’s third quarter fell 1% from last year — $1.842 billion down to $1.842 billion. Income for the first nine months of the year dropped a full 6% from last year’s $5.427 billion, coming in at just $5.097 billion.

The losses in operating income were primarily caused by Disney’s investment in BAMTech and lowered equity in the income of investees. Disney obtained a controlling interest in BAMTech — the digital content platform creator responsible for ESPN+ and Disney’s upcoming streaming service —at the end of fiscal 2017. They explain the loss related to it as ” higher content and marketing costs and ongoing investments in their technology platform including costs associated with ESPN+, which was launched in April 2018.”

Disney cites losses related to Hulu and A+E for its performance in equity of the income of investees, stating, “The decrease at Hulu was driven by higher programming and labor costs, partially offset by growth in subscription and advertising revenue. The decrease at A+E was due to lower advertising revenue and higher programming costs, partially offset by higher program sales.”

Parks and Resorts

Compared to last year’s Q3, Parks and Resorts saw growth of 6% in revenues, from $4.894 billion to $5.193 billion, and 15% in segment operating income, from $1.168 billion to $1.339 billion. The division saw revenues increase from $13.748 billion for the first nine months of 2017 to $15.226 billion this year — 11% growth year-over-year. Segment operating income jumped 20% for the three-quarter period, from $3.028 billion to $3.640 billion.

Disney attributes the boost of domestic parks operating income to increased guest spending — “increases in average ticket prices, food, beverage and merchandise spending and average daily hotel room rates.” — which was somewhat offset by labor costs.

Disney Cruise Line’s growth was due to “higher passenger cruise days,” which is thanks to the Disney Fantasy being in dry-dock during last year’s Q3.

Both Shanghai Disney Resort and Hong Kong Disneyland Resort contributed to international Parks and Resort growth in operating income. Disney saw attendance increase in Shanghai, although they did suffer from guests spending less on average due to lower ticket prices. Hong Kong’s success was based on “higher occupied room nights, average ticket prices and attendance.”

Studio Entertainment

Studio Entertainment saw major increase across the board. Quarterly revenues increased 20% from last year, leaping from $2.393 billion to $2.878 billion — operating income raised from $639 million to $708 million, an 11% jump.

Comparing the first three quarters of the fiscal year, revenue raised 11% and operating income grew 12%. Revenue was $7.836 billion compared to 2017’s $6.947 billion — operating income was $2.384 billion compared to last year’s $2.137 billion.

Success in this division can be explained by comparing the motion picture releases for the third fiscal quarters of both years. 2017 saw the release of Guardians of the Galaxy Vol. 3 and Cars 3, Pirates of the Caribbean: Dead Men Tell No Tales, and the ongoing profits from Beauty and the Beast — 2018 debuted Avengers: Infinity WarIncredibles 2Solo: A Star Wars Story, and still profited from the ongoing success of Black Panther.

Timing of Star Wars films affected DVD/Blu-ray sales, as this year’s title, The Last Jedi, was released in the 2nd quarter, compared to Rogue One‘s 3rd quarter release last year.

Consumer Products & Interactive Media

The least successful division by far, Consumer Products dropped 8% for revenues this quarter over last year, from $1.085 billion to $1.001 billion — revenues saw a decrease of 2% for the first nine months of the year, from $3.618 billion down to $3.528 billion.

Q3 operating income fell from $362 million to $324 million, a 10% loss — it suffered a 6% loss for the first three fiscal quarters, from last year’s $1.371 billion to $1.295 billion.

Disney blamed the loss on “The decrease in income from licensing activities was driven by lower revenue from products based on Spider-Man and Cars, partially offset by an increase from products based on Avengers.”

Announcements and Strategies for the Future

  • When looking forward to the upcoming streaming service that is expected to premiere in fall of 2019, Iger said, “We’re gonna walk before we run with building the content library we intend to build.”
    He added, however that “consumers are picking and choosing” their content and that Disney has a “brand to compete along with Netflix, Amazon and anyone in the market.”
    Iger boasted that “the only place people will be able to get Marvel, Pixar, and Lucasfilm products will be on this channel, so we see no need to rush or implement a high volume content library.”
  • In regards to the Parks and Resorts division, Iger commented that “Toy Story Land and Star Wars will give us more revenue yield in 2019.”
  • When discussing Studio Entertainment, Iger listed the movies scheduled for 2019, and commented that “the studio slate is about as strong as it gets.”
    Movies scheduled include Captain Marvel, Toy Story 4, Aladdin (live action), Dumbo (live action), Frozen 2, Star Wars: Episode IX, The Lion King (live action), and The Jungle Cruise.
    Iger also said that “the 2019 studio move slate is clean and unencumbered [by existing licensing deals].”

Source: The Walt Disney Company


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