Disney returns to profit as streaming starts to pay off

Disney returned to a profitable third quarter as its combined streaming business started making money for the first time and the movie Inside Out 2 did well in theaters.

Operating income for the entertainment segment nearly tripled to US$1.2 billion thanks to better performances from its direct-to-consumer and content sales/licensing and Other segments.

The Walt Disney Co. said Wednesday that its direct-to-consumer business, which includes Disney+ and Hulu, reported a quarterly operating loss of US$19 million, which was smaller than its loss of US$505 million a year earlier. Revenue climbed 15 per cent to US$5.81 billion.

For the period ended June 29, Disney earned US$2.62 billion, or US$1.43 per share. A year earlier it lost US$460 million, or 25 cents per share.

Stripping out one-time gains, earnings were US$1.39 per share, easily topping the US$1.20 analysts polled by Zacks Investment Research expected.

Revenue for the Burbank, California, company rose four per cent to US$23.16 billion, beating Wall Street’s estimate of US$22.91 billion.

The company made US$254 million in operating income from content sales and licensing helped by the strong performance of Inside Out 2 at movie theaters, which is now the highest-grossing animated film of all time.

Disney said Wednesday that the original Inside Out, which came out in 2015, helped drive more than 1.3 million Disney+ sign-ups and generated over 100 million views worldwide since the first Inside Out 2 teaser trailer dropped.

The combined streaming businesses, which includes Disney+, Hulu and ESPN+, achieved profitability for the first time thanks to a strong three months for ESPN+ and a better-than-expected quarterly performance from the direct-to-consumer unit.

Disney said in May that it expected its overall streaming business to soften in the third quarter due to its platform in India, Disney+Hotstar. The company also said at the time that it anticipated its combined streaming businesses to be profitable in the fourth quarter, so the money-making quarter was a surprise.

In the Experiences division, which includes theme parks, revenue climbed three per cent in the third quarter. International rose five per cent. Domestic parks and experiences operating income fell six per cent, while international operating income edged up two per cent.

Disney said that the decline in operating revenue for domestic parks and experiences was because of increased costs driven by inflation, technology spending and new guest offerings.

The company cautioned that the moderation in demand it saw in its domestic parks in the third quarter could linger for the next few quarters. It anticipates fourth-quarter Experiences operating income falling by mid single digits compared with the prior-year period due to the domestic parks moderation as well as cyclical softening in China and less people at Disneyland Paris due to the impact the Olympics had on normal consumer travel.

Disney now anticipates full-year adjusted earnings per share growth of 30 per cent.

In April shareholders rebuffed efforts by activist investor Nelson Peltz to claim seats on the company board, standing firmly behind Iger as he tries to energize the company after a rough stretch.

In June Disney asked a federal appellate court to dismiss its lawsuit against Florida Gov. Ron DeSantis after his appointees approved a deal with the company on how Walt Disney World will be developed over the next two decades, ending the last piece of conflict between the two sides.

As part of the 15-year deal, Disney agreed to invest US$17 billion into Disney World over the next two decades and the district committed to making infrastructure improvement on the theme park resort’s property.

Shares dipped slightly before the opening bell Wednesday.