Disney Beats Q3 Earnings Expectations Behind Record Box Office Haul

Mouse House beat analyst estimates with $14.3 billion in revenue and earnings of $1.62 a share

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The Walt Disney Company reported third-quarter revenue of $14.3 billion and earnings of $1.62 a share after markets closed Tuesday, beating analyst expectations.

That topped consensus analyst estimates of $14.2 billion in revenue and earnings of $1.61 a share, as Disney’s strength in movies made up for its continued struggles in cable TV, particularly with its sports juggernaut ESPN. Disney failed to beat expectations for the first time in five years when it reported its second-quarter earnings in May.

Disney’s revenue jumped 9 percent and earnings per share surged 10 percent compared with the same time the previous year. Disney classifies the three months ending at July 2 as its fiscal third quarter.

“Disney delivered another quarter of double-digit EPS growth, and we are thrilled with our continued performance,” Disney Chairman and CEO Bob Iger said in a statement accompanying the earnings. “Our results are evidence that our asset mix is strong, as is our ability to execute in ways that enhance the Disney brand and create value for our shareholders while we invest for future growth.”

Disney’s film studio took center stage in its strong quarterly performance. Led by an unprecedented first six months at the box office in which Disney films have achieved 28 percent market share year-to-date, its movie division reeled in $2.8 billion in revenue in the quarter, up 40 percent on the previous year. The division’s profit jumped 62 percent to $766 million.

While Disney’s first quarter benefited from “Zootopia,” which made more than $1 billion worldwide — and $235.6 million in China alone — and plenty of residual “Star Wars: The Force Awakens” business well into January, it continued that momentum during the next three months. “Captain America: Civil War,” “The Jungle Book” and “Finding Dory” were all released during that period, and each opened to more than $100 million domestically.

Between 2006 and 2012, Disney acquired Marvel, Pixar and Lucasfilm, each of which has contributed a mega hit this year that has boosted its bottom line. Marvel’s “Captain America” grossed $404.6 million domestically in the second quarter alone, while Pixar’s “Finding Dory” reeled in $330.3 million. Lucasfilm’s “The Force Awakens” made $284.7 million over the first half of the year and more than $2 billion worldwide since its release.

ESPN, however, is another story.

The sports network is Disney’s key profit driver, making up 45 percent of the company’s revenue and 60 percent of its profit during the last quarter. But it has lost 11.3 million subscribers over the last five years, including 4.2 million in the past year alone. The network peaked at 100.1 million subscribers in 2011 and now has 88.8 million, which equates to hundreds of millions of revenue per year.

ESPN is reported to charge a carriage fee in excess of $7 per subscriber by research firm SNL Kagan — easily the most expensive cable channel — which means those subscriber losses have an outsize impact on the books.

At the same time, rights fees for the live sports ESPN specializes in broadcasting continue to accelerate in the face of fierce competition from other networks — and tech companies like Twitter — for one of the few pieces of programmed television that still delivers monster ratings.

In 2014, ESPN signed a 9-year, $24 billion deal alongside Time Warner’s TNT to broadcast the NBA. That’s been a drag on Disney’s stock price. While the S&P 500 is up 6.7 percent year-to-date, Disney’s shares are down 8 percent, and 11.6 percent over the past year.

One area where ESPN can hope to grow sports viewership is abroad. China is also a key to Disney’s theme park business. Shanghai Disneyland Park opened in mid-June, and investors were curious to see what the earliest returns will be from a destination 15 years in the making.

But theme parks were hardly a beacon of unfiltered good news either. In June, an alligator fatally dragged a 2-year-old boy whose family was staying at Walt Disney World’s Grand Floridian resort. TheWrap reported that Disney had been aware of problems with guests getting too comfortable feeding and interacting with alligators.

Disney will discuss the earnings on a conference call at 5 p.m. ET.