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Disney Earnings Beat Expectations Due to Parks' Strength

By Beth McKenna - May 9, 2019 at 10:25AM

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The entertainment giant delivered solid results for its fiscal second quarter.

Walt Disney (DIS 2.28%) reported its fiscal second-quarter 2019 results after the market close on Wednesday. Revenue slipped 3%, and earnings per share (EPS) fell 13% year over year. However, declines on the entertainment giant's top and bottom lines were expected, due largely to a tough year-over-year studio entertainment comparable. 

Shares rose 0.5% in after-hours trading. We can probably attribute the market's slightly positive initial reaction to the fact that both revenue and earnings came in a little better than most analysts were expecting. 

Exterior view of Cinderella's Castle at Walt Disney World in Florida with the sun setting or rising in the background.

Image source: Disney.

Disney's key numbers


Fiscal Q2 2019

Fiscal Q2 2018

Year-Over-Year Change


$14.92 billion

$14.55 billion


Segment operating income

$3.82 billion

$4.24 billion


GAAP net income

$5.43 billion

$2.94 billion






Adjusted EPS




Data source: Disney. GAAP = generally accepted accounting principles. EPS = earnings per share.

On March 20, Disney closed on its acquisition of Twenty-First Century Fox (21CF). For the 11 days of the quarter that 21CF was owned by Disney, it contributed revenue of $373 million and operating income of $25 million. 

Adjusted EPS strips out items affecting comparability. In the reported quarter, the most significant such item was a "non-cash gain the company recognized in connection with the acquisition of a controlling interest in Hulu," according to the earnings release. In the year-ago period, the most notable item was a benefit from U.S. tax code overhaul. 

Cash generated from operations declined 13% year over year to $3.92 billion, and free cash flow (FCF) fell 21% to $2.72 billion. Both metrics, particularly FCF, tend to fluctuate notably from quarter to quarter.

Disney doesn't provide guidance. For some context (though long-term investors shouldn't place too much importance on Wall Street's near-term estimates), analysts were looking for adjusted EPS of $1.59 on revenue of $14.39 billion. So the House of Mouse beat both expectations. 

Media networks: Relatively steady, thanks to cable


Fiscal Q2 2019

Year-Over-Year Change


$5.53 billion


Operating income

$2.19 billion


Data source: Disney.

Here's how the two businesses within this segment performed: 

  • Cable networks revenues increased 2% year over year to $3.71 billion, and operating income edged up 2% to $1.76 billion.
  • Broadcasting revenues slipped 2% to $1.82 billion, and operating income fell 29% to $247 million. (Segment operating income also received a boost of $182 million from equity in the income of investees, flat with the year-ago quarter.) 

Cable's higher operating income was due to an increase at ESPN, driven by higher affiliate revenue from rate increases, though that was partially offset by a decline in the number of subscribers. The company attributed broadcasting's 29% decline in operating income to "higher programming costs, lower program sales and a decrease in advertising revenue, partially offset by higher affiliate revenue from contractual rate increases." 

Parks, experiences, and consumer products: The quarter's champ (again) 


Fiscal Q2 2019

Year-Over-Year Change


$6.17 billion


Operating income

$1.51 billion


Data source: Disney.

This segment's rising profits were attributable "to growth at our domestic theme parks and resorts, increases at our consumer products business and cruise line, and higher attendance and occupied room nights at Hong Kong Disneyland Resort," Disney said in the earnings release.

Domestic parks continued to get a boost from increased visitor spending on admission tickets, food and beverages, and merchandise. Higher attendance and occupied room nights at Disney World also provided a tailwind. On the earnings call, CFO Christine McCarthy said that attendance at domestic parks was up 1% year over year and that average guest spending rose 4%.

This performance was particularly impressive given that results included a calendar-related headwind -- the shift in the timing of the Easter holiday. In the current year, the entire holiday period fell in fiscal Q3, while last year's Q2 included one week of the holiday period.

People of various ages -- some of whom are eating popcorn or drinking beverages -- sitting in seats in what appears to be a movie theater.

Image source: Getty Images.

Studio entertainment: Declined on tough comparables


Fiscal Q2 2019

Year-Over-Year Change


$2.13 billion


Operating income

$534 million


Data source: Disney.

I warned investors in my earnings preview to expect declines in this segment. The quarter's movie releases, led by Marvel's Captain Marvel, couldn't match the high box-office bar set in last year's fiscal Q2, which included the release of Marvel's Black Panther and the continued screenings of Star Wars: The Last Jedi. Moreover, home entertainment profits declined "due to lower unit sales reflecting the performance of Thor: Ragnarok and Star Wars: The Last Jedi in the prior-year quarter compared to no comparable Marvel or Star Wars titles in the current quarter."

DTC and international: Loss widens on increased streaming business spending 


Fiscal Q2 2019

Year-Over-Year Change


$955 million


Operating income

($393 million)

N/A -- Down $205 million from a loss of $188 million in Q2 2018. 

Data source: Disney.

Operating loss widened in this segment because Disney has been investing in its nascent direct-to-consumer (DTC) streaming businesses. It continues to invest in ESPN+, which rolled out in April 2018, and is incurring costs associated with the upcoming launch of its broader streaming service, Disney+.

Moreover, the segment incurred a loss from the consolidation of Hulu following the Fox acquisition. Once Hulu became majority owned by Disney on March 20, 100% of its operating results for the remainder of the quarter were reported in this segment's results. Prior to that point, Disney's ownership share of Hulu results was reported as equity in the loss of investees.

Looking ahead

Disney turned in a solid quarter, given the tough year-over-year comparisons it faced in the studio entertainment segment. 

The company has many catalysts for growth on the horizon, including the integration of the Fox assets, the inclusion of its box-office take from the phenomenally successful Avengers: Endgame in the its fiscal Q3 results, the opening of Star Wars: Galaxy's Edge at Disneyland on May 31 and at Disney World on Aug. 29, and the launch of Disney+ on Nov. 12. Subscriptions to the streaming service will be priced at $6.99 a month or $69.99 per year, the company announced last month at its investor day. 

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