Disney’s (DIS) box office magic is back, and that’s taking its stock to one of the happiest places on Earth for investors.
Shares of Disney surged 9% in early trading on Thursday following a solid quarterly earnings beat and upbeat long-term guidance. The company’s ticker page was the number one most active on the Yahoo Finance platform.
The advance takes Disney’s stock up about 23% year to date, out-performing the 16% gain for the Dow.
“I do think that the focus on raising the bar on quality and delivering, really, I think the best content in the industry is an indication that the magic is back at Disney”, Disney CFO Hugh Johnston said on Yahoo Finance’s Morning Brief (video above).
The financial performance of Disney’s entertainment business stole the show, no pun intended. Its sales surged 14% on the back of strong performance from Inside Out 2 and Deadpool & Wolverine. Operating profits hit $1.1 billion, up from $236 million a year ago.
Johnston believes the momentum is poised to continue with key franchise releases of Moana 2 and the Lion King coming up.
The company’s parks and linear TV businesses continue to be challenged for several reasons, however.
Sales in Disney’s experiences segment — which houses the global theme park business — only rose 1% year over year as cautious consumers kept a lid on spending. Operating income fell 5%. Attendance was relatively unchanged year over year.
Johnston said the parks business is beyond its low point, and doesn’t think venues such as Shanghai Disney would get roped into a potential Trump administration trade war with China.
“We’re about bringing smiles to people’s faces. We’re about creating moments for families. We’re about creating joy. That’s not a political thing by any stretch of the imagination. And frankly, I think most political leaders would look at Disney and say, you know what? That’s something that I want to make sure our citizens get to enjoy,” Johnston explained.
As for the linear TV network business — which includes ABC and ESPN — sales and profits dropped 6% and 38%, respectively.
The company has undergone rounds of layoffs in its TV business the past year, but the shift to streaming continues to be fast and furious — likely requiring deeper cost cuts.
Johnston says he ran the numbers for CEO Bob Iger, and it makes more sense to stay in the traditional TV business.
“I think the core for us is really the content creation that comes out of our networks. It plays across both distribution channels, and that’s really the most important thing,” Johnston added.
Despite the weak areas of Disney’s vast portfolio, investors appear to be latching onto the view that a rebound in the entertainment business and a more cost-focused Disney is all that matters right now.
“Stepping back, we continue to like the medium-term story for Disney, save for linear networks where expectations we think are set appropriately and ongoing cost cuts could help to soften the rate of decline. Content performance is strong with film releases year to date performing at or well beyond previous franchise iterations, which should fuel demand for Disney+ ahead of a password share crackdown and price increase,” said JP Morgan analyst David Karnovsky in a client note.
Karnovsky said Disney’s renewed success at the box office provides “confidence” in further momentum around upcoming releases. He rates Disney shares at overweight, or the equivalent of a buy.
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Net sales: $22.6 billion, +6% from the prior year, vs. $22.47 billion estimate
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Entertainment revenue: $10.8 billion, +14% year over year, vs. $10.66 billion estimate
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Direct to consumer revenue: $5.78 billion, +15% year over year, vs. $5.82 billion estimate
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Sports revenue: $3.91 billion, flat year over year, vs. $3.95 billion estimate
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Experiences revenue: $8.24 billion, +1% year over year, vs. $8.2 billion estimate
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Disney+ subscribers: 158.6 million vs. 156.82 million estimate
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Total operating income: $3.7 billion, +23% year over year, vs. $3.71 billion estimate
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Adjusted EPS: $1.14, up 39% from the prior year vs. $1.10 estimate
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FY25 Outlook
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FY26 Outlook
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FY27 Outlook
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