Disney Roars Past Q2 Earnings Expectations But Misses on Revenue

Mouse House continues to face ESPN concerns

Last Updated: May 9, 2017 @ 3:59 PM

Market cycles are a tale as old as time, but Disney has managed to stay on top of the film industry, as another banner quarter at the box office helped the Mouse House top earnings per share expectations, but its ESPN cable network continues to face questions.

After markets closed Tuesday, Disney reported revenue of $13.34 billion and earnings of $1.50 a share for the three months ended March 31, which is the second quarter of its fiscal year. The Mouse House reeled in $12.97 billion in revenue and earnings of $1.36 a share for the corresponding period a year earlier. Analysts had estimated $13.45 billion in revenue and earnings of $1.41 a share on average. Disney’s stock dipped 2 percent in after-hours trading.

“Disney delivered another quarter of double-digit EPS growth, driven by the strong performance of our Studio and Parks and Resorts,” Chairman and CEO Bob Iger said in a statement accompanying the earnings. “Our continued strong performance is a direct result of our proven strategic focus on great branded content, innovative technology and global growth. We’re pleased with our results in Q2 and remain confident in our ability to continue to deliver significant shareholder value over the long term.”

Disney’s film studio became the first ever movie house to gross more than $7 billion in a year in 2016, and the Mouse House continues to find plenty of cheese at the box office. Its live-action remake of “Beauty and the Beast” came out during the first quarter and has gone on to gross nearly $1.2 billion worldwide since its March 17 release, while “Rogue One: A Star Wars Story,” which hit theaters in December, had plenty of sales well into the first quarter. And the studio looks poised to for a strong rest of the year, with its Marvel film “Guardians of the Galaxy Vol. 2” opening to $147 million last weekend and plenty of other tentpoles scheduled, capped off by “Star Wars: The Last Jedi” in December.

But the company’s media networks division, led by ESPN, has struggled in the age of cord-cutting. ESPN continues to bleed subscribers — losing more than 12 million since 2011 — while the rights fees it pays for live sports, the network’s bread and butter, continue to rise. Last month, ESPN laid off 100 on-air personalities and reporters in a bid to get some of its variable costs under control. That doesn’t seem to have placated investors, however, as Disney’s stock price is down 3 percent since the culling. And while all its other lines of business had strong growth in profits year-over-year, the media networks division saw its operating income dip 3 percent.

One thing investors could look forward to: Disney plans to unveil a standalone ESPN-branded streaming service powered by BAMTech, the streaming video technology business the company acquired a 33 percent stake in last year for $1 billion. While that won’t make up for its cable subscriber losses (and ESPN execs have said it won’t duplicate the network’s TV offerings), a streaming ESPN product could monetize some incremental users who might not otherwise pay for the service through a traditional cable package.

Another bright spot for Disney has been its theme parks division. At Disney’s annual meeting in March, Iger said that Shanghai Disneyland Park, which opened last June, had already welcomed 8 million visitors. The park will also host the world premiere of Disney’s “Pirates of the Caribbean: Dead Men Tell No Tales” later this month.

The company will hold a conference call at 4:30 p.m. ET to discuss the earnings release.

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