Walt Disney Co (NYSE:DIS) reported third quarter revenues of $17.0bn, up 45% year-on-year and ahead of analyst forecasts. That reflects a very strong recovery in the group’s theme parks, which were shut for much of the same quarter last year, as well as the reopening of Disney stores.
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Operating profit more than doubled to $2.4bn, comfortably beating market expectations as the Parks and consumer products business moved from a large loss 12 months ago to a reasonable profit. That more than offset headwinds in the Cable TV business, where the return of live sport increased programming costs.
Overall the Media & Entertainment Distribution business saw revenues rise 18% to $12.7bn. However, that was driven by a 57% increase in sales in the still unprofitable Direct-to-Consumer business (especially Disney+ where subscribers more than doubled to 116m). Together with the higher programming costs that meant operating profits fell 32% to $2.0bn.
Parks, Experiences & Products reported revenues of $4.3bn, up from $1.1bn a year ago. That growth was broad based, with Domestic Park revenues rising from $213m a year ago to $2.7bn, International Parks from $116m to $526m and Consumer Products from $736m to &1.2bn. With Domestic Parks breaking even this quarter, compared to a $1.6bn loss in the same quarter last year, the division reported overall operating profits of $356m, up from a $1.9bn loss.
Free cash flow for the first nine months of the year came in at $466m, down from $2.7bn last year. That reflects the large increase in content costs year-on-year, after studios closed at the peak of the pandemic. Net debt at the end of the quarter stood at $39.8bn, slightly down on the $40.7bn reported at the end of the last financial year.
Disney’s US Parks Help Beat Analyst Expectations
Nicholas Hyett, Equity Analyst at Hargreaves Lansdown:
“We think Disney’s US parks breaking even this quarter is an important turning point for the entertainment giant. It has weathered the storm, and strong results from the parks have helped it beat analyst expectations.
Global lockdowns unsurprisingly saw losses rack up in those parts of Disney that rely on packing thousands of guests into theme parks and cinemas all around the world. Fortunately, draconian cuts in production spend kept Disney’s mature, unglamorous, but suddenly vital, broadcast and cable TV arms in the black and that’s carried it through.
Looking back at 2020 investors may even think that the pandemic provided a helpful backdrop for the launch of Disney+ – a service that would have otherwise had to go toe-to-toe with Netflix in a far more competitive environment.
Still the need to fight off stiff competition in streaming probably explains why content spend has rapidly recovered as park losses narrow. Freed from the need to support shuttered parks, Disney’s creative studios are getting the cash injection they need to arm Disney in a streaming war that looks likely to hot up from here. Cable and broadcast can’t be relied upon to dig the group out of future scrapes as consumer’s increasingly turn to digital alternatives.”
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