Disney studio profits drop without ‘Star Wars,’ but earnings beat Wall Street expectations

Emily Blunt appears in a scene from Disney's "Mary Poppins Returns."
(Jay Maidment / Disney Enterprises)

Walt Disney Co. on Tuesday reported lower first quarter results from its juggernaut movie studio, which for the first time in years did not release a “Star Wars” film during holidays.

But despite the earnings decline, the Burbank entertainment giant managed to beat Wall Street expectations, as the company awaits final regulatory approval for its acquisition of 21st Century Fox assets.

The numbers:

Overall, Disney reported net income of $2.8 billion, or $1.86 a share, on revenue of $15.3 billion during the first quarter. Net income was down 37% from the same quarter a year ago, when the company earned $4.4 billion, or $2.91 a share. Revenue was flat with the prior-year quarter.

Disney said the profit decline was primarily because of the 2017 tax law backed by President Trump, which resulted in a $1.6-billion tax benefit for the company in the prior-year quarter. Excluding such factors, Disney’s earnings declined 3% in the quarter.


Still, the results were better than Wall Street was expecting. Analysts polled by FactSet had projected earnings of $1.54 a share and revenue of $15.2 billion in the quarter. Disney’s stock rose in after-hours trading, having closed at $112.66.

The takeaway:

The company’s film studio had comparatively lackluster results in the three months that ended in December.

Disney released “Mary Poppins Returns” in the quarter, which grossed a decent but not spectacular $329 million at the global box office. The first quarter also included the release of the big budget fantasy “The Nutcracker and the Four Realms,” which flopped; and the successful animated sequel “Ralph Breaks the Internet.”

A year ago, “Star Wars: The Last Jedi” collected $1.3 billion in global receipts.


Studio entertainment revenue fell 27% to $1.8 billion, while the segment’s operating income declined 63% to $309 million.

However, operating income from Disney’s media networks business, which includes ABC and ESPN, grew 7% to $1.3 billion, thanks to higher broadcasting revenue.

The company’s parks business continued its strong run, with profit in its parks and consumer products segment rising 10% to $2.2 billion on revenue of $6.8 billion.

The outlook:

Analysts on Disney’s earnings call continued to focus on Chief Executive Bob Iger’s plans to integrate 21st Century Fox assets, and the coming launch of its Disney+ streaming service meant to compete with Netflix.


Disney’s broader streaming strategy, which includes sports network ESPN and its stake in Hulu, is a key initiative for Iger and was a major driver of the deal to buy much of Rupert Murdoch’s entertainment portfolio for $71 billion.

The company has made some strides in online video already. Iger on the call touted growth of the ESPN+ sports streaming service that launched in April, saying the app now had 2 million paid subscribers, up from 1 million in September.

Disney is expected to spend heavily on content and marketing for Disney+, which will include new movies and shows from brands including “Star Wars,” Pixar, Marvel and Fox’s National Geographic. The company’s new direct-to-consumer and international segment posted a loss of $136 million in the quarter, thanks to investment in Disney+ and the push behind ESPN+. Disney+ is expected to launch late this year.

“This is a bet on the future of this business,” Iger said. “And we are deploying our capital basically so that long term the growth of this company is stronger than it would have been without these investments.”


Iger also signaled that Disney won’t quash Fox’s R-rated “Deadpool” series once the foul-mouthed Marvel hero joins the more family friendly superheroes at the company — as long as the content is branded in a way that doesn’t confuse the audience’s squeaky clean image of Disney.

“We’re going to continue in that business,” Iger said.