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Disney’s second-quarter profit surges, but television unit’s operating income declines

Walt Disney Co. headquarters in Burbank.
(Katie Falkenberg / Los Angeles Times)

Walt Disney Co. reported an 11% jump in profit in its second fiscal quarter, boosted by several hit films and growth in its theme parks operation.

But the company’s closely watched media networks unit, which includes ESPN, had a tough quarter. Operating income fell 3% to $2.2 billion, which the company attributed in part to higher programming costs and subscriber losses during a period of upheaval in the television business.

“ESPN is the biggest challenge for the company right now,” said analyst Robin Diedrich of Edward Jones Research. “It is a challenge to navigate that transition period, because consumers are shifting.”

Overall, Burbank-based Disney posted net income of $2.4 billion, or $1.50 per share for the quarter ending April 1. Revenue climbed 3% to $13.3 billion.

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The company only partly bested the expectations of analysts, who had predicted Disney would deliver adjusted earnings of $1.41 per share on revenue of $13.41 billion, according to FactSet.

Shares of Disney closed up 0.58% to $112.07 in regular trading. The stock lost more than 2.5% at one point in the after-hours session.

The media networks unit’s operating income declined on a year-over-year basis for the fourth quarter in a row. Over that timeframe, Disney has been under pressure to address subscriber losses at ESPN, which has shed more than 10 million customers since 2010, according to Nielsen data. The network went through a round of high-profile layoffs last month that included the departure of some popular on-air personalities.

“We’re managing that business efficiently,” Chief Executive Robert Iger said on a conference call with analysts. “We always have.”

ESPN needs to grow its revenue base to keep up with the escalation of sports rights costs at a time when a traditional revenue source — cable affiliate fees — is under threat by so-called cord cutters and the move to smaller cable bundles. Iger touted ESPN’s inclusion in the offerings of streaming television providers such as Sling TV, which have enticed younger consumers.

“We’ve seen really nice growth there, but it’s nascent, and the growth that we’ve seen in number of [subscribers] so far has not made up for the losses that we have seen in the expanded basic [pay-TV] service,” Iger said.

He also extolled ESPN’s forthcoming standalone multi-sport subscription streaming service, which he said is likely to give consumers the ability to pay to view specific sports teams, among other options. It is scheduled for release by year’s end.

In contrast to the performance of the media networks unit, each of the company’s three other business groups — parks and resorts, studio entertainment, and consumer products and interactive media — reported year-over-year operating income increases.

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Disney’s film studio had a strong quarter, posting operating income of $656 million, which was up 21% from a year earlier. The studio was aided by lower marketing costs and the box-office success of “Rogue One: A Star Wars Story” and “Beauty and the Beast,” both of which have grossed more than $1 billion worldwide.

Disney’s parks and resorts business saw operating income increase 20% to $750 million. The company’s domestic theme parks set second-quarter records for revenue and operating income. Iger also said that attendance at Shanghai Disneyland, which opened in June, will surpass 10 million visitors in the next few days. “Attendance is outpacing our most optimistic projections,” he said.

daniel.miller@latimes.com

@DanielNMiller

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UPDATES:

5 p.m.: This article was updated with additional reaction from analysts.

2:40 p.m.: This article was updated with additional information about Disney’s performance during the second quarter.

This article was originally published at 2:10 p.m.

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