Why Is Disney (DIS) Up 3.1% Since Last Earnings Report?
A month has gone by since the last earnings report for Walt Disney (DIS). Shares have added about 3.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Disney due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Disney Q3 Earnings Beat Estimates, Revenues Rise Y/Y
The Walt Disney Company reported third-quarter fiscal 2024 adjusted earnings of $1.39 per share, which beat the Zacks Consensus Estimate by 15.8% and increased 35% year over year.
Revenues rose 3.7% year over year to $23.15 billion and beat the consensus mark by 1.3%.
Segment Details
Media and Entertainment Distribution revenues (45.7% of revenues) increased 4.5% year over year to $10.58 billion.
Revenues from Linear Networks declined 7.3% year over year to $2.66 billion. Direct-to-Consumer revenues increased 15.1% year over year to $5.8 billion. Content Sales/Licensing and Other revenues decreased 4.4% year over year to $2.11 billion.
Parks, Experiences and Products revenues (36.2% of revenues) rose 2.3% year over year to $8.38 billion. Domestic revenues were $5.82 billion, up 3% year over year. International revenues increased 4.6% year over year to $1.6 billion in the reported quarter.
Meanwhile, revenues from Disney’s Consumer Products decreased 5.2% year over year to $964 million.
Subscriber Details
Disney+, as of Jun 29, 2024, had 118.3 million paid subscribers compared with 117.6 million as of Mar 31, 2024.
Domestic Disney+ average monthly revenue per paid subscriber decreased from $8.00 to $7.74 due to the impact of subscriber mix shifts.
International Disney+ (excluding Disney+ Hotstar) average monthly revenue per paid subscriber increased from $6.66 to $6.78 due to a rise in retail pricing, partially offset by an unfavorable foreign exchange impact.
Disney+ Hotstar’s average monthly revenue per paid subscriber increased from $0.70 to $1.05 due to higher advertising revenues.
Hulu SVOD Only average monthly revenue per paid subscriber increased from $11.84 to $12.73 due to higher advertising revenues. Hulu Live TV + SVOD average monthly revenue per paid subscriber increased from $95.01 to $96.11 due to higher advertising revenues.
Operating Details
Costs & expenses increased 0.6% year over year to $19.8 billion in the reported quarter.
Segmental operating income was $4.22 billion, up 18.7% year over year.
Media and Entertainment Distribution’s segmental operating income surged 194.4% year over year to $1.2 billion.
Linear Networks’ operating income decreased 5.8% to $966 million. Domestic operating income declined due to lower advertising revenues attributable to a decrease in impressions reflecting lower average viewership, partially offset by higher rates.
Direct-to-Consumer operating loss was $19 million, narrower than the year-ago quarter’s loss of $505 million, primarily owing to subscription revenue growth attributable to higher rates due to increases in retail pricing across the company’s streaming services and subscriber growth at Disney+ Core.
Content Sales/Licensing and Other operating income were $254 million against an operating loss of $112 million reported in the year-ago quarter. The increase in operating results was due to higher theatrical distribution results reflecting the strong performance of Inside Out 2 and Kingdom of the Planet of the Apes.
The prior-year quarter also included Guardians of the Galaxy Vol. 3, The Little Mermaid, Elemental and Indiana Jones and The Dial Of Destiny.
Parks, Experiences and Products’ operating income was $2.22 billion, down 3.3% year over year.
The Domestic segment reported an operating income of $1.34 billion, down 6.2% year over year due to higher costs owing to inflation, increased technology spending and new guest offerings, partially offset by the comparison to depreciation in the prior-year quarter related to the closure of Star Wars: Galactic Starcruiser and cost-saving initiatives.
The International segment reported an operating income of $435 million, up 1.6% year over year, driven by higher volumes attributable to increases in attendance and occupied room nights and guest spending growth due to higher per-room spending at the company’s resorts.
Consumer Products’ operating profit increased 1.6% year over year to $440 million.
Balance Sheet
As of Jun 29, 2024, cash and cash equivalents were $5.95 billion compared with $6.63 billion as of Mar 31, 2024.
Total borrowings (including the current portion of borrowings) were $47.5 billion as of Jun 29, 2024, compared with $46.2 billion as of Mar 31, 2024.
Free cash flow was $2.23 billion in the reported quarter compared with $2.4 billion in the previous quarter. The company repurchased $2.5 billion worth of shares in the fiscal third quarter.
Guidance
The company remains on track for the profitability of the combined streaming businesses to improve in the fourth quarter of fiscal 2024, with both Entertainment DTC and ESPN+ expected to be profitable in the quarter.
In the fiscal fourth quarter, the company expects Disney+ Core subscribers to grow modestly.
At Content Sales/Licensing and Other, Disney expects profitability in fourth-quarter fiscal 2024 to look roughly similar to the fiscal third quarter and also expects profitability for fiscal 2024.
At Experiences segment, DIS expects that the demand moderation it saw in domestic businesses in the fiscal third quarter could impact the next few quarters. While the company is actively monitoring attendance and guest spending and aggressively managing the cost base, Disney expects the Experiences segment’s operating income to decline by mid-single digits compared with the prior year, reflecting these underlying dynamics as well as impacts at Disneyland Paris from a reduction in normal consumer travel due to the Olympics and some cyclical softening in China.
So far this quarter, Disney experienced strong demand at Disney Cruise Line, although results in the fiscal fourth quarter will likely reflect pre-launch expenses for the Disney Adventure and Disney Treasure.
DIS expects fiscal 2024 earnings per share (EPS), excluding certain items, to increase at least 30% from fiscal 2024.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Disney has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Disney has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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