Coverage: Disney announces quarterly earnings, shares drop

“Star Wars: The Force Awakens” is undoubtedly a big hit for the Walt Disney Co., but when the Burbank, Calif.-based company reported earnings Tuesday, the only thing analysts cared about was ESPN.

In the quarter, ESPN saw a decline in subscribers, prompting many to question the sports network’s dominance.

Amanda Gomez of TheStreet summed up the company’s latest earnings:

Walt Disney Co. stock is falling by 2.51% to $90 in after-hours trading on Tuesday, after the Burbank, CA-based company reported a 6% decline in media networks operating income for the fiscal 2016 first quarter, driven by a decline in subscribers from ESPN and lower advertising revenue from A&E.

The entertainment company, however, posted overall financial results that exceeded expectations for the quarter ended January 2.

Disney posted earnings of $1.63 per share on revenue of $15.24 billion for the latest quarter, while analysts surveyed by Thomson Reuters had estimated for earnings of $1.45 per share on revenue of $14.75 billion for the quarter.

The 14% growth in revenue was driven the release of Star Wars: The Force Awakens, which pushed studio entertainment revenues up by 46% to $2.72 billion.

Media networks revenue increased by 8% to $6.33 billion because of advertising revenue growth, while parks and resorts revenue jumped by 9% to $4.28 billion due to strong results from domestic parks.

“I have always taken a long-term perspective on Disney, which means buy some before and buy some after,” TheStreet’s Jim Cramer, portfolio manager of the Action Alerts PLUS charitable trust, said earlier today.

Jacob Pramuk of CNBC broke down the company’s earnings one step further:

Disney’s quarter, which ended Jan. 2, included the opening of “Star Wars: The Force Awakens,” the company’s first foray into the venerable movie franchise. That vehicle, which Disney promises is just the first of many such films, crossed the $2 billion mark earlier this month — becoming only the third movie to ever do so. The company touted its coming films from the “Star Wars” franchise as well as new Marvel features and animated films.

Its studio sales for the period came in at $2.72 billion, up 46 percent year over year, and topping estimates of $2.32 billion, according to StreetAccount.

Investors also are looking for clues on the strength of Disney’s media networks — including the sports programming cash cow ESPN. Part of investors’ concern is that the media giant will see ESPN revenue slide with the trend of “unbundling” — consumers opting for television programming options that don’t include a bundle of networks they never watch.

Customers holding lightsabers and dressed as Jedi Knights collect their tickets from the counter at the first public screening of Walt Disney’s “Star Wars: The Force Awakens” at a Vue Entertainment cinema in London.

Revenue of $6.33 billion for its media networks unit slightly beat expectations and rose 8 percent from the previous year. But operating income for the segment fell 6 percent to $1.41 billion. The company said advertising and affiliate revenue grew, but was partially offset by “a decline in subscribers and unfavorable foreign currency translation impacts.”

Operating income for the cable networks slid 5 percent to $1.2 billion “due to a decrease at ESPN,” the company said. Still, Iger told CNBC that subscriber growth has picked up at ESPN since the quarter ended.

“We’ve actually seen an uptick recently in ESPN subs. We did reference, in candor, in the August call, that we had seen some sub erosion, and that in fact was the case. But the last few months, in particular, have been encouraging,” he said.

Brooks Barnes of The New York Times detailed how Iger spent most of the company’s call defending ESPN, which is not doing well in terms of growth:

Speeding past Wall Street’s expectations, Disney on Tuesday reported a 28 percent increase in quarterly profit, with the “Star Wars” franchise as the primary engine.

But instead of reveling in the record results, Robert A. Iger, Disney’s chief executive, found himself once again mounting a defense of ESPN on a post-earnings conference call with analysts.

Since August, when Mr. Iger acknowledged that ESPN had experienced modest subscriber losses, Disney has been dogged by concerns about the long-term health of its cable television holdings, which have historically provided the bulk of its annual profit. Mr. Iger has repeatedly rejected the notion, put forward by a few analysts, that ESPN is particularly at risk as some consumers forgo a traditional cable subscription.

On Tuesday’s call, Mr. Iger again emphasized the strength of ESPN, noting that in recent weeks the sports behemoth had achieved an increase in subscribers, in part from new, slimmed-down cable and satellite services like Sling TV that are popular with younger consumers. At one point, in response to an analyst question about the changing way media is consumed, Mr. Iger said it was “just ridiculous” to think that ESPN would not continue to dominate.

“Predictions that many have made are more dire than they should be,” he added, sounding a bit frustrated.

Disney executives also sought to use the call to focus attention on what they called long-term “purposeful diversification” efforts, which have included the acquisitions of Pixar, Lucasfilm and Marvel; doubling the size of Disney Cruise Line; and aggressive theme park expansion.

Mr. Iger noted that Disney now had 11 franchises that generate $1 billion or more in annual sales. He added that, between 2009 and 2015, operating income at the division that houses ESPN grew 8 percent compounded annually while the rest of the company’s businesses combined to contribute 23 percent compounded growth.

But analysts continued to press him on ESPN, and Disney shares fell 3 percent in after-hours trading.