Walt Disney reported a decline in operating profit at its theme parks and predicted a ‘moderation in demand’ in coming quarters, overshadowing the success of the animated Pixar film “Inside Out 2” and the company’s streaming services.
The company’s stock slid 4.5% Wednesday as Disney warned operating income at the parks would be down ‘mid single-digits’ in the fiscal fourth quarter.
“We expect to see a flattish revenue number in Q4 coming out of the parks,” Chief Financial Officer Hugh Johnston told investors, adding, “It’s really just a few quarters. I don’t think I would refer to it as protracted.”
Analysts said weakness at Disney’s parks, coming a time when consumer spending has been pinched by inflation, underscores worries about the slowing US economy.
“Coupled with other travel companies recognizing poor growth, it is clear people are scaling back their spend when it comes to tourism and recreation,” said Ben Barringer, technology and media analyst at Quilter Cheviot.
Disney’s Experiences segment that includes parks and consumer products — and makes up just over half of profit — reported operating income dropped 3.3% to $2.22 billion, falling short of the $2.3 billion expected by analysts.
Its gloomy forecast for the parks contrasted with a sunnier picture at its Entertainment unit as operating income nearly tripled — with the combined streaming businesses of Disney+, Hulu and ESPN+ posting a profit for the first time.
“Disney was ahead of schedule in delivering profitability in its streaming unit, which is a major milestone considering how much money the company has lost over the past several years while building up this operation, and how much its competitors have also lost,” said Emarketer analyst Paul Verna. “If Disney can continue to deliver profitability quarter after quarter, it will have cracked the code.”
Overall, Disney reported a profit of $2.62 billion for the quarter — a stark improvement from the $460 million loss of a year ago during the same period.
Adjusted earnings-per-share reached $1.39 for Disney’s fiscal third quarter, topping analyst estimates of $1.19, LSEG data showed. Revenue rose 4% to $23.2 billion, beating forecasts of $23.1 billion.
Disney CEO Robert Iger — who survived a bruising proxy battle this year from activist investor Nelson Peltz over the direction of the company — told investors that the third quarter “demonstrates the progress we’ve made,” adding he was “confident in our ability to continue driving earnings growth through our collection of unique and powerful assets.”
Iger touted lauded the company’s streaming business, with Disney’s television group collecting a total 183 Emmy nominations. The box office success of films like “Inside Out 2” also prompted a surge in viewing of the original film on Disney+.
“We’re seeing growth in consumption, on top of the popularity of our offering,” Iger said. “Which gives us the pricing leverage that we believe we have. So every time we’ve taken a price increase, we’ve got a modest turn from that.”
Earlier this week, Disney hiked prices for all three streaming services, which will now cost customers between $1 and $2 more per month.
Hulu’s live television offering will cost $6 more per month, Disney said on Tuesday.
Iger is working to rebuild Disney after billions of dollars in losses from streaming efforts, the decline of traditional television and a rough patch for its storied film studio.
“Inside Out 2” notched $1.6 billion in global ticket sales and “Deadpool & Wolverine,” which debuted in the current quarter, has brought in more than $850 million.
“After several years of misfires and muted successes, Disney has now in the span of a month and a half released the highest grossing animated film of all time and achieved the largest ever opening for an R-Rated film,” MoffettNathanson media analyst Robert Fishman wrote ahead of Disney’s earnings release.
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.
Fans who have visited its theme parks in central Florida and Southern California have complained about exorbitantly expensive prices for lodging and food, along with long lines for rides, and convoluted ticket and ride reservation system.
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