Disney's Profit Rises 23%, but Its Costs Climb Too
08 August 2018 - 7:58AM
Dow Jones News
By Micah Maidenberg
Walt Disney Co.'s expenses rose faster than revenue in its
latest quarter, as the entertainment giant reported higher costs
for labor and technology and those accumulated as part of efforts
to acquire 21st Century Fox Inc.'s entertainment assets.
The earnings report is the first since Comcast Corp. dropped out
of its pursuit of the 21st Century Fox assets last month, clearing
the way for Disney to move forward with its proposed $71 billion
acquisition of important parts of Rupert Murdoch's media
holdings.
In late July, shareholders of Disney and 21st Century Fox
approved the deal, which still needs regulatory sign-off in several
countries. The U.S. Justice Department approved the transaction in
June.
"Having earned the overwhelming support of shareholders, we are
more enthusiastic about the 21st Century Fox acquisition than
ever," Disney Chief Executive Robert Iger said in a written
statement.
Disney said its third-quarter profit rose 23% to $2.92 billion,
or $1.95 a share, from $2.37 billion, or $1.51 a share, a year
earlier. The company's adjusted profit of $1.87 a share was less
than the $1.95 a share that analysts polled by FactSet
predicted.
Revenue increased 7% to $15.22 billion, less than the $15.35
billion expected by analysts.
Shares in Disney were off 2.2% at $114 in after-hours
trading.
Revenue increased across Disney's three largest business
segments, but the company also said total expenses rose 8% to $11.3
billion.
Parks and resorts revenue rose 6% to $5.19 billion, and
operating income increased 15% to $1.3 billion. Stronger guest
spending as a result of higher prices helped offset an increase in
wages for employees at the company's domestic theme parks and other
costs.
The company also rode the popularity of movies released in the
quarter -- including "Avengers: Infinity War" and "Incredibles 2"
-- with sales for the segment rising 20% to $2.89 billion. Disney
also reported impairments to animated films "that will not be
released," as well as lower domestic home-entertainment
results.
Disney's media-networks business, its largest, reported revenue
of $6.2 billion for the quarter, up 5% from a year earlier. The
segment includes Disney's cable-television holdings, including
ESPN, a significant profit center for the company.
But ESPN's business has been challenged by consumers who have
switched to cheaper ,so-called skinny cable bundles, or canceled
their cable packages outright in favor of streaming services from
Netflix Inc. and Amazon.com Inc. Disney said operating income from
ESPN rose in the quarter from the prior year.
In April, Disney launched ESPN+, a $4.99-a-month streaming
service meant to draw in consumers who want to watch sports but
don't want to pay for a full cable package.
The company reported that costs associated with ESPN+ helped to
drive an operating loss at BAMTech, a direct-to-consumer streaming
technology.
Revenue at Disney's broadcasting business, also part of the
media-networks segment, increased 11% to $2 billion for the
quarter. Operating income rose 43% to $361 million.
Disney's planned takeover of the 21st Century Fox assets might
help it compete for customers seeking streaming options, because it
would allow Disney to double its ownership stake in Hulu to
60%.
The company said corporate and unallocated expenses for the
period almost doubled compared with last year, to $196 million.
That increase stemmed partly from its agreement to buy the 21st
Century Fox assets, as well as higher compensation costs, Disney
said.
Meanwhile, on Tuesday, 21st Century Fox made a formal offer to
acquire the British pay-television operator Sky PLC. Fox, which
already owns a 39% stake in Sky, is trying to beat out Comcast to
acquire the rest of the company.
21st Century Fox and News Corp, parent company of The Wall
Street Journal, share common ownership.
(END) Dow Jones Newswires
August 07, 2018 17:43 ET (21:43 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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