ii view: box office hits send Walt Disney profits skyward

The pandemic has been tough for this entertainment giant, with its shares down more than 20% over the last five years. We assess prospects.

14th November 2024 15:31

Keith Bowman from interactive investor

Fourth-quarter results to 28 September

Revenue up 6% to $22.57 billion
Adjusted earnings per share up 39% to $1.14

Chief executive Bob Iger said:

“This was a pivotal and successful year for The Walt Disney Company, and thanks to the significant progress we’ve made, we have emerged from a period of considerable challenges and disruption well positioned for growth and optimistic about our future.”

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ii round-up:

Film successes helped entertainment giant The Walt Disney Co (NYSE:DIS) report sales and earnings that beat Wall Street's fourth-quarter forecasts.

New box office records for films Inside Out 2 and Deadpool & Wolverine drove a 6% increase in quarterly revenues to September year-over-year to $22.57 billion, fuelling a 39% gain in adjusted earnings per share to $1.14. Analysts had estimated outcomes of $22.4 billion and $1.10 per share.

Shares in the Dow Jones company rose 8% in post results trading having come into these latest numbers up around 14% year-to-date. That’s ahead of a 1% gain for Sky owner Comcast Corp Class A (NASDAQ:CMCSA) but comfortably behind a 70% increase for Netflix Inc (NASDAQ:NFLX). The Dow Jones index is up almost 17% in 2024.

Profits at the Entertainment division, taking in the film business, soared to $1.06 billion during the quarter to 28 September, up from $236 million a year ago. Adding to the performance, streaming customers rose by an additional 4.4 million year-over-year to a total 174 million.

Elsewhere, sales for Sports business ESPN came in flat year-over-year at $3.9 billion. Increased programming costs, largely for colleague football, left profits from a year ago down 5% at $929 million.

Profits for entertainment or theme parks declined 6% from a year ago to $1.66 billion. Reduced attendance and higher costs for the international parks business more than countered sales and profit gains at the home US parks.

Revenue for 2024 as a whole gained 3% to $91.4 billion, pushing earnings of $2.72 per share compared to $1.29 in 2023. Disney expects high single digit growth in adjusted earnings over 2025, with an acceleration to double-digit growth then expected during 2026 and 2027.

ii view:

Begun in 1923 by brothers Walt and Roy, Disney today employs over 190,000 people. Group brands include Pixar, Marvell Studios, Lucasfilm, ABC News, Hulu and Entertainment and Sports Programming Network or ESPN. Experiences or theme parks and cruises generated its biggest slice of profits during the fiscal year 2024 at 59%, followed by Entertainment at 25% and Sports the balance of 16%.

Management goals include achieving sustained profitability for its streaming business, building ESPN into the preeminent digital sports platform and improving the output and economics of its film studios.

For investors, high borrowing costs continue to squeeze the disposable income of customers globally. Intense competition from streaming rivals Netflix, Amazon.com Inc (NASDAQ:AMZN) Prime and Apple Inc (NASDAQ:AAPL) cannot be overlooked. Reigniting creative flare for film and leaning less on sequels remains a work in progress. A return to the previous chief executive Bob Iger leaves questions and uncertainty over likely future leadership, while a forecast dividend yield of 0.7% is below Comcast at almost 3% and ITV (LSE:ITV) at over 7%.

To the upside, diversity of operations regularly sees positives for one division countering challenges for another. Costs remain a high management focus. Ongoing exposure to sports content remains invaluable given its ability to generate large audiences, while the group’s brand strength is strong.

In all, and while rejuvenating Disney remains a work in progress for the CEO, this titan of the entertainment industry looks to remain worthy of a place in diversified investor portfolios.

Positives:

Geographical diversity, strong brands, and media content bank
Focus on costs

Negatives:

Cost pressured consumers may cut entertainment spending
Intense competition

The average rating of stock market analysts:

Buy

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