Disney's profit surges in the first quarter, but revenue disappoints amid struggles in media networks

Disney's profit surges in the first quarter, but revenue disappoints amid struggles in media networks
Walt Disney Co. headquarters in Burbank. (Reed Saxon / Associated Press)

Walt Disney Co. delivered stronger-than-expected profit in the first quarter — thanks partly to a federal tax cut — but its revenue dipped below Wall Street's estimates as the Burbank company saw continued declines at its ESPN cable channels and ABC broadcast network.

Disney reported net income of $4.42 billion, up 78% from a year earlier, boosted by a $1.6-billion one-time tax benefit from the new federal income tax legislation.


Analysts had predicted adjusted earnings per share of $1.61 on revenue of $15.5 billion, according to FactSet, and Disney delivered adjusted per-share earnings of $1.89 on revenue of $15.4 billion, up 4%.

Disney's earnings report comes amid a period of turbulence for global markets — on Monday the Dow Jones industrial average plunged 1,175 points before gaining 567 points a day later — and the company's performance is sure to be scrutinized by anxious investors.

Shares of Disney rose 1.4% in regular trading Tuesday to $106.17. In the after-hours session, the stock was up more than 2%.

Disney's closely watched media networks unit, which houses the company's television business, saw its operating income decline year-over-year for the seventh consecutive quarter. The unit — whose crown jewel is ESPN — reported operating income of $1.2 billion, a drop of 12% from a year earlier.

"That's really the key issue, media [networks] continues to struggle and has not been a contributor here, and that's been going on for a while," said Robin Diedrich, an analyst with Edward Jones. "Some kind of change or turn there is what investors will be looking for."

The unit's broadcast group, which includes the ABC television network, posted segment operating income of $285 million, a decrease of 25%. Disney has continued to face ratings struggles at ABC, fewer syndication hits from its television studio and lower revenues at TV stations.

Within the unit's cable networks group, segment operating income declined 1% to $858 million. Disney attributed the drop, in part, to declines at ESPN, which experienced a loss in subscribers.

The sports network has for years faced subscriber losses amid the cord-cutting trend and other changes in media consumption. Less than a decade ago, ESPN was available in about 99 million homes in the U.S., but that number has fallen to about 87 million homes, according to Nielsen data.

A new product could alleviate some investors' concerns: Disney will soon launch ESPN+, a sports streaming service aimed in part at helping the company capture younger viewers who have turned away from traditional pay-TV options.

The company said Tuesday that ESPN+ will cost $4.99 a month when it debuts this year.

"It certainly is a price point that is very appealing," Diedrich said. "A fan, I think, would be willing to make an incremental purchase for that type of product."

The subscription offering — which will stream Major League Baseball and National Hockey League games, among other events, and also include original programming — will be housed within a revamped ESPN application available on iOS, Android and other platforms.

"We plan to invest further in the direct-to-consumer feature adding more live games and produced sports programming along with even greater personalization in the years ahead," Disney Chief Executive Robert Iger said on a conference call with analysts.

Disney's film studio posted operating income of $829 million, off 2% from a year earlier. The unit benefited from the strong performance of "Star Wars: The Last Jedi," which debuted in mid-December and has grossed more than $1.3 billion worldwide, but was squeezed by a decrease in home entertainment results.


Just before Disney released its earnings report, the company announced that it had tapped "Game of Thrones" creators David Benioff and D.B. Weiss to write and produce a new series of "Star Wars" films. Disney said those movies, which do not have release dates, would be separate from another new "Star Wars" trilogy that is being developed by filmmaker Rian Johnson, the writer-director of "The Last Jedi."

The company's consumer products and interactive unit delivered operating income of $617 million, a decrease of 4%. The parks and resorts business was a bright spot, with operating income increasing 21% to $1.35 billion during the quarter.

During a teleconference, analysts asked Iger for updates on Disney's $52.4-billion acquisition of film and TV assets from 21st Century Fox Inc., a deal that was announced in December and is subject to regulatory approval. The pact would give Disney access to a host of intellectual property as it prepares to launch ESPN+ and another streaming service for films and television in 2019.

But Iger said he could not provide any update on when the Fox deal might secure approval.

"We're going through the process, which is significant because of the number of jurisdictions that we have to file in and the size and the complexity of this deal," Iger said. "[We've known] from the absolute beginning just how patient we have to be in this regard."


4:55 p.m.: This article was updated with additional comments from Bob Iger.

This article was originally published at 1:50 p.m.