The Walt Disney Co. reported a decline in operating profit at its theme parks and predicted a “declining demand” in the coming quarter, overshadowing the success of Pixar’s animated film “Inside Out 2” and its streaming service.
Disney shares fell 4.5% on Wednesday after the company warned that its theme parks operating profit would decline in the “mid-single digits” in the fourth quarter.
“We expect theme park revenue to be flat in the fourth quarter,” Chief Financial Officer Hugh Johnston told investors, adding, “This is just a few quarters. We don’t see this as an extended period.”
Analysts said Disney Parks’ weakness underscores concerns about a slowing U.S. economy at a time when inflation is squeezing consumer spending.
“Other travel companies are seeing slower growth and it’s clear that people are scaling back their spending on tourism and entertainment,” said Ben Ballinger, technology and media analyst at Quilter Cheviot.
Disney’s experiences division, which includes theme parks and consumer products, accounted for just over half of its profits, but operating profit fell 3.3% to $2.22 billion, below the $2.3 billion analysts had expected.
The brighter outlook for the company’s theme park business contrasted with a bleak outlook for its entertainment division, which saw its operating profit nearly triple and its streaming businesses, Disney+, Hulu and ESPN+, turn a profit for the first time combined.
“Disney has achieved profitability in its streaming division ahead of schedule, which is a major milestone given how much it’s lost, and how much its competitors have lost, over the past few years building this business,” said eMarketer analyst Paul Barna. “If Disney can continue to grow profits quarter after quarter, they’ll have cracked the key.”
Overall, Disney reported a quarterly profit of $2.62 billion, a significant improvement from a loss of $460 million in the same period last year.
Disney earned $1.39 a share on adjusted earnings per share in the third quarter, beating analysts’ estimates of $1.19, according to LSEG data. Revenue rose 4% to $23.2 billion, beating expectations of $23.1 billion.
Disney CEO Robert Iger, who this year survived a bitter proxy fight with activist investor Nelson Peltz over the company’s direction, told investors the third quarter was “demonstrative of the progress we have made” and that he was “confident we can continue to drive earnings growth through our unique and powerful set of assets.”
Iger praised Disney’s streaming business, which has garnered a total of 183 Emmy nominations for its TV divisions, and the box office success of films like “Inside Out 2” has also helped drive a surge in viewership of original movies on Disney+.
“We’re seeing an increase in the popularity of our service, as well as an increase in spending,” Iger said. “We believe this gives us a price advantage, so every time we increase our prices, we see a gradual recovery from that.”
Earlier this week, Disney increased the prices of all three of its streaming services, meaning customers will now have to pay an extra $1 to $2 per month.
Disney announced Tuesday that the price of Hulu’s live TV programming will increase by $6 per month.
Iger is trying to turn Disney around after billions of dollars in streaming losses, the decline of linear TV and struggles at its storied film studios.
“Inside Out 2” grossed $1.6 billion in worldwide ticket sales, while “Deadpool & Wolverine,” released this quarter, brought in more than $850 million.
“After years of failures and muted successes, in the space of a month and a half, Disney released the highest-grossing animated film of all time and the best opening ever for an R-rated movie,” MoffettNathanson media analyst Robert Fishman wrote ahead of Disney’s earnings release.
Disney said the decline in operating revenue from its domestic theme parks and experiences was due to higher costs from inflation, technology spending and new guest services.
Fans at the company’s parks in Central Florida and Southern California have complained about exorbitant room and meal prices, long ride lines and complicated ticket and ride reservation systems.
With post wire
