Disney Reports Strong Earnings but Warns of Bumps Ahead

In a surprise, Disney+ made money for the first time in the latest quarter, but the company said it expected a slowdown in its parks division.

Several people, one wearing red Mickey Mouse ears on a headband, looking up at an illuminated Epcot Center at night.
“We are seeing some evidence of a global moderation from peak post-Covid travel,” Disney’s chief financial officer said.Credit…Todd Anderson for The New York Times

Brooks Barnes

Disney reported strong earnings on Tuesday, driven in part by a surprise profit at its flagship streaming service — a first. But investors responded nervously to a coming slowdown at Disney theme parks, which have recently been the company’s primary growth engine.

Disney shares fell more than 9 percent, to about $105, by the close of trading.

Revenue at Disney Experiences, a division that includes theme parks and cruise ships, totaled $8.4 billion, a 10 percent year-on-year increase. Operating income totaled $2.3 billion, up 12 percent. Wall Street, however, had hoped for stronger profit margins. In addition, Disney said higher wages, expenses tied to the arrival of two new cruise liners and — crucially — a general slowdown in travel would negatively affect the coming quarter.

“We are seeing some evidence of a global moderation from peak post-Covid travel,” Hugh Johnston, the chief financial officer of Disney, said on a conference call with analysts.

Disney+ had been expected to lose more than $100 million in the most recent quarter, widening losses since its 2019 arrival to roughly $12 billion. Instead, it swung to a $47 million profit, in part by adding 6.3 million subscriptions worldwide (excluding India), to bring its total to 117.6 million. Average revenue per paid subscriber climbed 6 percent, to $7.28.

Investors, however, did not like what Mr. Johnston had to say about streaming in the coming quarter — namely that Disney+ was not expected to add subscribers and that it would again lose money, a result of programming expenses at Disney+ Hotstar, a low-price streaming service in India.

Subscriptions to Hulu, which Disney also owns, were largely flat (50 million), while the company’s sports-oriented streaming service, ESPN+, shed a few hundred thousand subscriptions to end the quarter with 24.8 million. Together, Disney’s three streaming services lost $18 million, an improvement from $659 million a year earlier.

Mr. Johnston said Disney’s streaming portfolio was on track to turn a profit as a whole by September.

By the end of the year, Disney said, limited ESPN programming will be added to Disney+ for the first time. Disney called the addition of an ESPN “tile” a step toward bringing the sports giant’s full heft to the service in the future.

Disney’s per-share earnings for the most recent quarter rose 30 percent from a year earlier. Revenue inched up 1 percent, to $22.1 billion. (Mr. Johnston announced that adjusted per-share earnings for the year would rise 25 percent, up from a previous forecast of 20 percent.)

Disney beat analyst expectations for per-share earnings by 10 percent. The company matched expectations for revenue.

Traditional television, with fewer people paying for cable hookups, continued its downward trajectory. Revenue at Disney’s entertainment networks, which include ABC, FX and National Geographic, declined 8 percent, while operating income plunged 22 percent. Advertising growth at ESPN contributed to a 2 percent increase in revenue and helped limit a decline in operating income to 2 percent.

Disney last reported earnings in February, pairing strong results with a blizzard of announcements about future entertainment offerings. A “Moana” sequel. A partnership with Epic Games, the maker of Fortnite. A timeline for the rollout of a flagship ESPN streaming service that integrates sports programming with ESPN’s fantasy platforms and ESPN Bet.

At the time, multiple activist investors, including Nelson Peltz, were running proxy campaigns for board seats. While the activists had sharply different views on how Disney should be managed — one wanted “Netflix-like margins” of up to 20 percent in streaming, another floated splitting up the company — they expressed the same basic motivation: Disney’s stock price was not high enough.

Disney shares have been trading at about $117, up from $85 six months ago. But the stock was priced at about $197 three years ago.

Robert A. Iger, Disney’s chief executive, ultimately defeated them. But Mr. Peltz told CNBC that he would “watch and wait” to see if Disney delivered on growth and succession promises. If it didn’t, he said, “you’ll see me again.”

William Murphy

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