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Walt Disney Co. posted a loss in the second quarter due to restructuring and impairment charges, but adjusted profit beat expectations and its streaming business turned a profit. Theme parks also continued to perform well and the company raised its outlook for the year.
While Disney said on Tuesday that its overall streaming business will be weaker in the current quarter due to its platform in India, Disney+Hotstar, the company expects its combined streaming businesses to be profitable and a significant fourth quarter will be a future growth driver for the company, with further improvements in profitability in the 2025 financial year.
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The direct-to-consumer business, which includes Disney+ and Hulu, posted quarterly operating income of $47 million, compared with a loss of $587 million a year ago. Sales rose 13% to $5.64 billion.
For the combined streaming businesses, which include Disney+, Hulu and ESPN+, second-quarter operating loss fell from $659 million to $18 million, while revenue fell from $5.51 billion to $6. $19 billion improved.
Disney+’s core subscriber count rose more than 6% in the second quarter.
But the improving picture for Disney in the streaming space comes with the decline of the cable business. Sales in this segment fell by 8% in the last quarter.
“When looking at our company as a whole, it is clear that the turnaround and growth initiatives we initiated over the last year have continued to deliver positive results,” Iger said in a prepared statement.
During Disney’s earnings call, Iger said the company plans to add an ESPN tab to Disney+ by the end of the year, a maneuver previously done with Hulu. This will give US subscribers access to some live sports and studio programming within the Disney+ app.
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ESPN, Fox and Warner Bros. Discovery announced plans in February to launch a sports streaming platform in the fall that will include offerings from at least 15 networks and all four major professional sports leagues.
Iger also said the company will begin cracking down on password sharing for its streaming service in some markets next month and will expand the crackdown globally in September.
Although Disney has high-quality streaming content, Iger says the company now needs to focus on expanding its technology, similar to what competitors like Netflix have done. These measures, including crackdowns on passwords, are expected to boost profits.
It’s the first financial report since shareholders last month rejected activist investor Nelson Peltz’s efforts to win a seat on the company’s board. He is firmly behind Iger as he tries to get the company back on track after a difficult period.
Thomas Monteiro, senior analyst at Investing.com, said that some Disney investors may have expected more from the quarterly report, but that “the company has refocused its operations on its core business model, which is inherently more conservative.”
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Monteiro focused on the company’s efforts to make its streaming division profitable.
“The big surprise of the day came on the streaming front, which finally managed to turn a profit – well above forecasts – in the midst of the massive strike period in Hollywood,” Monteiro said. “This suggests that perhaps the more global, lower-cost Netflix-like model is the right path for an operation that needs to rethink its overall growth expectations.”
Domestic Disney theme park revenue rose 7%, while overseas Disney theme parks reported a 29% increase.
However, Disney admitted that it struggled with higher costs at its theme parks during the quarter due to inflation.
The company said guest spending at Walt Disney World increased due to higher ticket prices, while Disneyland guest spending increased due to increased ticket prices and hotel room prices.
Overseas, Hong Kong Disneyland benefited from the opening of World of Frozen, a part of the park that includes rides based on the popular “Frozen” films, in November.
Similar to many tourist destinations, Disney continues to adapt to post-pandemic travel.
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“While consumers continue to travel in record numbers and we continue to see healthy demand, we are seeing some evidence of a global slowdown in travel post-COVID,” Chief Financial Officer Hugh Johnston said during the call.
In the period ended March 30, Disney lost $20 million, or a penny per share. That compares with profit of $1.27 billion, or 69 cents per share, a year ago.
Restructuring and impairment charges increased to $2.05 billion from $152 million in the year-earlier period.
Adjusted earnings, which exclude fees and other items, were $1.21 per share, well above the $1.12 per share that analysts surveyed by Zacks Investment Research had forecast.
Disney said that based on its second-quarter performance, the company now has a full-year adjusted earnings per share growth target of 25%. So far, growth of at least 20% has been forecast.
The Burbank, California-based company’s revenue rose to $22.08 billion from $21.82 billion a year earlier, but was slightly below Wall Street estimates of $22.13 billion.
Content sales and licensing revenue fell 40% as Disney released no significant film titles in the second quarter compared to the same period last year, which included “Ant-Man and the Wasp: Quantumania.” Last year’s results were also contributed by the sustained performance of “Avatar: The Way of Water,” released in December 2022.
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Shares fell more than 8% in morning trading.
In February, Walt Disney Co. said it was making “significant cost reductions” and reduced its selling, general and other operating expenses by $500 million in the first quarter. The company cut thousands of jobs in 2023.
In March, Gov. Ron DeSantis’s allies and Disney reached an agreement in a state court dispute over how Walt Disney World will evolve after Florida’s governor took control of the theme park resort.
Last month, cast members at Disneyland in California and the union that organizes them, the Actors’ Equity Association, said they had filed a petition for union recognition.
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