Disney Earnings Top Estimates On Inside Out 2, Streaming Success

(MENAFN- ValueWalk) The blockbuster film Inside Out 2 set box office records, while Disney's streaming business turned a profit for the first time .

Walt Disney Co. (NYSE:DIS) got a huge lift from the Inside Out film franchise in the fiscal third quarter, as it helped propel Disney earnings higher and pushed them beyond analysts' estimates.

The blockbuster film, Inside Out 2, delivered record box office numbers last quarter for an animated film, driving profits higher in the Entertainment division.

Also, its predecessor, Inside Out, released in 2015, helped propel Disney's struggling streaming business to a quarterly profit for the first time - a major milestone for the media giant.

However, investors seemed more concerned about the performance of the business that has been carrying Disney for the past few years - its theme parks. Weaker than expected revenue in the Experiences division may have caused Disney stock to drop about 1% on Wednesday.

The animated film Inside Out 2 proved to be the box office success that Disney has been waiting for over the past couple of years.

The success of the film helped boost Disney to a 4% increase in overall revenue in the quarter to $23.2 billion, which beat estimates. It also lifted the struggling Entertainment division to a 4% revenue increase to $10.6 billion.

Overall, Disney generated $3.1 billion in net income, up from a $134 million net loss in the same quarter a year ago. The company generated $1.43 per share in earnings, up from a 25 cents per share net loss in the same quarter a year ago. Disney easily topped earnings estimates of $1.19 per share.

The film, which opened on June 14, is the number one film of 2024 making $628 million domestically and $1.56 billion worldwide.

It is the highest grossing animated film of all-time in both domestic and international box office and is already ranked in the top 10 all-time in international box office. It is also a top five Disney movie of all-time and the highest grossing Disney Pixar film ever.

It helped the film division, awkwardly titled Content Sales/Licensing, generate a profit of $254 million in the quarter, up from a $112 million net loss in Q2 of 2023.

The other headline from Disney's Q3 earnings was the success of the streaming business, which turned a profit for the first time, and ahead of schedule. In the last quarter, Disney CEO Bob Iger projected that streaming would turn a profit in Q4.

The direct-to-consumer streaming business, which includes Disney+, Hulu, and ESPN+, generated $47 million in profit on an adjusted basis. That is up from a $512 million net loss the same quarter a year ago. However, when you take out ESPN+, which is included in the Sports division in GAAP earnings, the DTC streaming business had a $19 million net loss, which is still far better than the $505 million net loss in Q2 2023.

Revenue in the streaming business jumped 15% to $5.8 billion.

One of the key revenue drivers for the streaming business was the film Inside Out, released in 2015, and the teaser trailer for Inside Out 2. Inside Out and the trailer were responsible for bringing in 1.3 million new Disney+ subscribers.

Overall, the number of paid subscribers to Disney+ rose 1% to 54.8 million, while Hulu subscribers rose 2% to 51.1 million.

“This was a strong quarter for Disney, driven by excellent results in our Entertainment segment both at the box office and in DTC, as we achieved profitability across our combined streaming businesses for the first time and a quarter ahead of our previous guidance,” Iger said.

Through Disney's woes with the streaming business, box office flops, high expenses, and proxy fights , Disney's theme parks have been the one constant that kept generating strong profits.

But, investors seemed to be a bit concerned about the Q3 results for the Experiences division, which includes theme parks. Revenue in this segment rose 2% year-over-year to $8.4 billion, led by international revenue, up 5%.

However, operating income for Experiences fell 3% to $2.2 billion, with U.S. parks seeing a 6% decline to $1.35 billion. The softness was attributed to higher costs driven by inflation, increased technology spending, and new guest offerings.

Disney plans to invest $60 billion in its theme parks over the next 10 years, so it remains a focal point of what Iger called“our complementary and balanced portfolio of businesses.” Iger added that Disney is“confident in our ability to continue driving earnings growth through our collection of unique and powerful assets.”

Disney increased its guidance for adjusted EPS growth for the full fiscal year to 30%, up from 25% in the previous quarter.

It also called for continued, and improved, profitability in its streaming business with Disney+ subscribers increasing and film division revenue similar to Q3.

However, the outlook for the theme parks business remains murky. The company expects the demand moderation it saw in Q3 to continue for the next few quarters.

“While we are actively monitoring attendance and guest spending and aggressively managing our cost base, we expect Q4 Experiences segment operating income to decline by mid-single digits versus the prior year,” Disney officials said in the release.

Disney stock was down modestly on the day, off about 1.3% as of late morning, eastern time.

MENAFN26092024005205011743ID1108717773