The fireworks of Disney’s first-quarter earnings amid a bitter proxy dispute faded in the second quarter, and the company’s commentary on a conference call today, particularly related to the parks deal, sparked fears among investors and pushed the stock lower.
Disney shares were down nearly 10% to about $105 in late morning trading.
Parks performed exceptionally well in the three months to March, reporting a 10% increase in revenue and a 12% increase in operating profit. But the future may not be so clear.
The upward trend was driven by international companies, led by Hong Kong Disneyland. Walt Disney World and the cruise line were solid. But Disneyland posted a decline in results despite rising attendance and per capita spending compared to last year due to higher costs, including labor, CFO Hugh Johnston said on a conference call with analysts.
A big surprise – he said Parks’ growth in the current fiscal third quarter would be stagnant for several reasons, including “some normalization of post-Covid demand in terms of demand.” While consumers continue to travel in record numbers and we continue to see healthy demand, we are seeing some signs of a global slowdown since the post-Covid travel peak.” Wall Street didn’t quite know what to make of it.
He expects Parks to recover in the fourth quarter of the fiscal year.
When asked about expansion during a question-and-answer session, he said: “As far as attendance goes, we’re basically saying things are trending toward normalization compared to post-Covid peaks.” The parking business reported 10% growth in the quarter. And that is of course an extremely high sales figure. We continue to see that bookings indicate healthy growth in the business going forward. “So we are still confident that there are opportunities for continued strong growth.” He said the third-quarter figure would be in the high single digits when one-off expenses are taken into account.
“I definitely feel like business is still going very, very well. Obviously we have the best in the industry in terms of products and people still have a strong desire to go on holiday and visit us.”
Disney is beginning a 10-year, $60 billion investment cycle in its parks and experiences. The first step is a major expansion of Disneyland. The plans, called “Disneyland Forward,” are expected to receive final approval from the Anaheim City Council tonight. “We are incredibly excited about the many potential new stories our guests could experience at Walt’s original theme park,” said CEO Bob Iger in his opening remarks on the conference call Avatar.
Speaking about the cruise business, Johnston said: “Given the company’s margin profile and the fact that it has the highest guest satisfaction scores in the company.” This leads us to conclude that this is a company with a lot of scope left for our shareholders will provide great returns.”