Disney returned to a profit in the third quarter as its integrated streaming business began to turn a profit for the first time and the film “Inside Out 2” performed well at the box office.
Operating profit at the entertainment unit, which includes its movie studios and parts of its TV division, nearly tripled to $1.2 billion. Disney’s box office success continued with “Deadpool and Wolverine,” giving the company its two best movies of the year.
The Walt Disney Co. said Wednesday that its direct-to-consumer business, which includes Disney+ and Hulu, reported a quarterly operating loss of $19 million, down sharply from a loss of $505 million in the same period a year ago. Revenue rose 15% to $5.81 billion.
The results came a day after Disney announced it would be increasing prices for Disney+, Hulu and ESPN+ starting Oct. 17. Disney+ and Hulu will each cost $9.99 per month with ads, a $2 increase for each plan. The ad-free version of Disney+ will cost $15.99 per month, a $2 increase, and the ad-free version of Hulu will cost $18.99 per month, a $1 increase. Ad-only ESPN+ will cost $11.99 per month, a $1 increase.
Disney earned $2.62 billion, or $1.43 a share, for the quarter ended June 29. This comes after a loss of $460 million, or 25 cents a share, in the same period a year ago.
Excluding one-time gains, earnings came to $1.39 per share, beating the $1.20 expected by analysts surveyed by Zacks Investment Research.
The Burbank, California-based company’s sales rose 4 percent to $23.16 billion, beating Wall Street expectations of $22.91 billion.
Disney shares fell in early trading on weakness at its domestic theme parks, part of its Experiences division that includes six theme parks around the world, cruise lines, merchandise and video game licenses. The company warned that the slowdown in demand seen at its U.S. theme parks could continue for the next few quarters.
The company expects its experiences business operating profit to decline mid-single digits in the fourth quarter compared to the same period last year due to downsizing at domestic theme parks, a weak economic cycle in China and lower attendance at Paris Disneyland due to the impact of the Olympics on normal consumer travel.
Financial stress among lower-income consumers is hurting theme parks, while higher-income consumers are taking slightly more international trips, Johnston said on the company’s conference call. Operating profit from domestic theme parks and experiences fell 6%, while operating profit from international theme parks and experiences rose a modest 2%.
In the third quarter, domestic parks revenue increased 3%. International parks revenue increased 5%.
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.
The company generated $254 million in operating profits from content sales and licensing, buoyed by the strong theatrical performance of Inside Out 2, which has now grossed more than $1.5 billion worldwide and is the highest-grossing animated film of all time.
Disney announced Wednesday that the 2015 original “Inside Out” has attracted more than 1.3 million subscribers to Disney+ and has garnered more than 100 million views worldwide since the first trailer for “Inside Out 2” was released.
The combined streaming business, which includes Disney+, Hulu and ESPN+, turned a profit for the first time, driven by a strong three-month performance from ESPN+ and a better-than-expected quarterly performance from its direct-to-consumer division.
CEO Bob Iger and Executive Vice President and CFO Hugh Johnston said in prepared remarks that ESPN had its largest primetime viewership among adults 18-49 in the past decade in the third quarter, driven by strong ratings in several areas, including the NBA Finals, the WNBA Draft, the NHL playoffs and the Stanley Cup Final.
Disney said in May that it expected its overall streaming business to be weaker in the third quarter due to its Indian platform Disney+ Hotstar. The profitable quarter came as a surprise, as the company had expected its combined streaming business to be profitable in the fourth quarter at the time.
Disney now expects full-year adjusted earnings per share to increase 30%.
In April, shareholders rejected a request from activist investor Nelson Peltz to join the company’s board, firmly backing Iger as he tries to revitalize the company after a difficult time.
In June, Disney asked a federal appeals court to dismiss a lawsuit against Florida Governor Ron DeSantis after his appointees approved a deal with the company and set development plans for Walt Disney World for the next 20 years, ending the latest standoff between the two parties.
As part of the 15-year deal, Disney agreed to invest $17 billion in Disney World over the next 20 years, and the District committed to working on infrastructure improvements at the theme park resort properties.
The stock fell more than 2% at the start of trading.
