By Dawn Chmielowski and Lisa Richwine
LOS ANGELES (Reuters) – Walt Disney Co forecast a “moderation in demand” for its theme park business in the coming quarters, overshadowing the success of Pixar’s animated film “Inside Out 2” and the company’s television business.
The company’s shares fell 1.1% on Wednesday after Disney warned that operating income at its parks would decline by “single-digit percentage” in the fiscal fourth quarter.
“We expect to see a flat revenue number in the fourth quarter from parks,” CFO Hugh Johnston told investors, adding: “It’s really just a few quarters. I don’t think I would refer to it as a long-term one.”
Analysts said the weakness at Disney parks, which comes at a time when consumer spending is declining due to inflation, underscores concerns about a slowing U.S. economy.
“With other travel companies seeing weak growth, it’s clear that people are cutting back on their spending when it comes to tourism and leisure,” said Ben Barringer, technology and media analyst at Quilter Cheviot.
Disney’s Experiences segment, which includes theme parks and consumer products and accounts for just over half of profits, reported a 3% decline in operating income.
Operating income nearly tripled in the entertainment unit, as the combined streaming businesses of Disney+, Hulu and ESPN+ turned a profit for the first time.
“Disney is ahead of schedule in achieving profitability in its streaming unit, which is a significant achievement considering how much money the company has lost over the past several years building that operation, and how much its competitors have lost as well,” said Paul Verna, an analyst at eMarketer. “If Disney can continue to achieve profitability quarter after quarter, they will have solved the puzzle.”
Disney said the unit’s operating income is likely to decline by “mid-single digits” in the third quarter from July to September compared to the same period a year earlier.
Disney’s adjusted earnings per share for the fiscal third quarter were $1.39, beating analysts’ estimates of $1.19, LSEG data showed. Revenue rose 4% to $23.2 billion, beating expectations of $23.1 billion.
CEO Bob Iger told investors the company’s streaming business is driven by the creative success of its entertainment division, with Disney’s television lineup racking up 183 Emmy nominations. The box office success of films like “Inside Out 2” has also led to increased original movie viewing on Disney+.
“We’re seeing growth in consumption, as well as the popularity of our offerings,” Iger said. “That gives us the pricing leverage that we believe we have. So every time we make a decision to increase prices, we get a modest shift in that direction.”
Iger is working to rebuild Disney after billions of dollars in losses from streaming efforts, the decline of traditional television, and a difficult period for the iconic movie studio.
The film studio is showing signs of recovery.
“Inside Out 2” has grossed $1.6 billion in global ticket sales, while “Deadpool & Wolverine,” which opened this quarter, has grossed more than $850 million.
“After several years of flops and low-key successes, Disney has now released in the space of a month and a half the highest-grossing animated film of all time and the biggest opening ever for an R-rated film,” MoffettNathanson media analyst Robert Fishman wrote ahead of Disney’s earnings announcement.
While it remains to be seen if these successes represent a return to form, Fishman said the upcoming slate is “full of very reliable titles” including “Moana 2” and “Mufasa: The Lion King” from Oscar-winning director Barry Jenkins.
The entertainment division, which includes film, television and streaming businesses, reported operating income of $1.2 billion in the quarter.
Streaming services Disney+, Hulu and ESPN+ generated operating profits of $47 million.
In the sports unit, which includes ESPN and the Star India business, operating income was $802 million, down 6% from a year earlier as costs of broadcasting cricket matches increased.
The Experiences unit reported operating income of $2.2 billion. Disney said there was a “moderation” in demand at its domestic parks, whose operating income was also impacted by higher costs and increased spending on technology and new consumer offerings. It saw increased attendance and spending at its international parks, where it also reported an increase in costs associated with new offerings.
The next quarter will be impacted by the Olympics, which led to lower attendance at Disneyland Paris, as well as some “softening” in business in China.
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