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Theme Parks Can't Bail Disney Out Forever

By Rick Munarriz - May 9, 2019 at 9:10AM

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Disneyland and Disney World continue to shoulder the burden of growth for the media giant.

Once again we find Disney's ( DIS 0.29% ) gated attractions saving the day for the media giant. Disney posted results for its fiscal second quarter on Wednesday afternoon, and the top line would've gone the wrong way if it weren't for the rock-steady gains at its theme parks and resorts business. 

Revenue at Disney rose 3% to $14.972 billion, but back out the 11 days of Twenty-First Century Fox -- the deal closed in late March -- and the House of Mouse would've seen its top line clock in at $14.549 billion. Pit that showing against the nearly identical $14.548 billion it served up in revenue a year earlier, and you have the photo-finish moment of this earnings season. It was the theme parks-helmed segment and its 5% top-line uptick sparing Disney from the year-over-year earnings decline that analysts were expecting. 

Alice, Mad Hatter, and Rabbit in front of the Mad Tea Party ride.

Image source: Disney.

You must be this tall to ride  

This was going to be a rough quarter for Disney. Its media networks arm has been flat as it charges fewer ESPN subscribers more for access that's getting more expensive to air. ABC is also feeling the pinch of consumers shifting to streaming services. Revenue there was flat with a 3% decline in segment operating income.

Things were destined to be even worse for its studio entertainment division. Captain Marvel fared well at local multiplexes during the first three months of the calendar year, but it was pitted against Black Panther and the tail end of the theatrical run of Star Wars: The Last Jedi a year earlier. It also only made the comparison harder that the eighth installment of the Star Wars franchise hit the home video market near the end of last year's fiscal second quarter. The studio entertainment division experienced a 15% drop in revenue and a profit-deflating 39% plunge in operating income. 

It was a different story at its theme parks, the only segment to not only grow its operating income but also widen its operating profit margin. The division's 15% spike in operating income tripled its 5% increase in revenue. 

Unlike its rival Universal Studios -- which also has theme parks in Florida, California, and Asia -- Disney didn't post a slight dip in the segment's revenue. Disney overcame the timing of the Easter holiday to deliver higher attendance at Disney World and Hong Kong Disneyland. Higher ticket prices, more occupied room nights, and guests spending more once inside the parks helped deliver the refreshing growth at Disney's most consistent segment over the past few years. 

The rest of Disney's businesses will be bigger contributors in the future. Disney's movie studio has an impressive slate of films rolling out. Things may never get better for its media networks business, but investors will be excited once Disney+ rolls out in six months. The theme parks won't have to shoulder the burden of growth forever, but it's nice to know that they could hold up when shareholders needed it the most. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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