Walt Disney Co. shares declined after the company released a disappointing earnings report Tuesday afternoon, but turned around after Chief Executive Robert Iger laid out plans for Disney’s acquisition of 21st Century Fox assets and its coming Disney-branded streaming service.
Disney DIS, +0.53% stock has been pressured by concerns about its television assets, especially cable networks like ESPN, and the company has launched a direct-to-consumer ESPN streaming service called ESPN+ and plans another one based on Disney content in late 2019. In an earnings report that fell short of expectations overall Tuesday afternoon, Disney missed on revenue projections for its cable networks, which may have spooked investors — after the earnings report hit, Disney shares slid more than 2%.
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Those fears didn’t seem to last long, however, as the stock rebounded to roughly break-even after Iger took the stage in a conference call, as has happened before. Iger said that the decline in subscribers to media networks slowed for a fourth consecutive quarter, largely thanks to the rise of so-called skinny bundles, and laid out his plans for additional assets that Disney expects to acquire from Fox FOX, -0.46% . Shares were showing an after-hours decline of about 0.7% as of 6:30 p.m. Eastern on Tuesday.
“We have always believed we have the brands and content to be extremely competitive and to thrive alongside Netflix NFLX, +0.26% , Amazon AMZN, +0.80% and anyone else in the market,” Iger said in Tuesday’s conference call. “And adding the Fox brands and creative assets ... make our [direct-to-consumer] products even more compelling for consumers.”
Iger specifically mentioned Fox’s FX and National Geographic networks, as well as the Fox Searchlight and core Fox movie studios, as stars of the assets Disney expects to acquire. He also named several properties within the Fox assets that will mix well with Disney’s current intellectual property.
“It gives us the opportunity to be associated with and to expand iconic movie franchises like ‘Avatar,’ Marvel’s ‘X Men,’ ‘The Fantastic Four,’ ‘Deadpool,’ ‘Planet of the Apes,’ ‘Kingsman’ and many others,” Iger said.
Iger also informed investors that ESPN+, the first direct-to-consumer streaming service the company launched since acquiring BamTech, has been attracting paying subscribers, though he did not give specific numbers.
“It’s still early days, but conversion rates from free trials to paid subscriptions are strong and subscription growth is exceeding our expectations,” he said.
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Overall, Disney reported second-quarter net income of $2.92 billion, or $1.95 a share, on sales of $15.23 billion, up from $14.24 billion a year ago. After adjustments for comparability with a year ago, the company reported earnings of $1.87 a share, up from $1.58 a year ago. Analysts on average expected Disney to report adjusted earnings of $1.95 a share on revenue of $15.35 billion, according to FactSet.
Disney’s largest segment, media networks, reported revenue of $6.16 billion, up from $5.87 billion a year ago, the only segment to grow year-over-year and beat analyst estimates. The beat was powered by broadcast networks, though, as ABC brought in higher affiliate fees and sold rights to a number of hit shows to beat expectations by more than $100 million. Cable network revenues of $4.19 billion came in lower than average analyst estimates of $4.27 billion, according to FactSet.
Disney reported $5.19 billion in sales in its Parks and Resorts segment, up 6% from $4.89 billion a year ago but lower than the average analyst estimate of $5.28 billion. The film business reported sales of $2.88 billion, up from $2.39 billion last year but lower than the average analyst expectation of $2.89 billion, according to FactSet. The “Consumer Products and Interactive Content” segment reported revenue of $324 million, down from $362 million a year ago and lower than the average analyst estimate of $372 million.
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In one other effect from the Fox acquisition, Chief Financial Officer Christine McCarthy disclosed in the call that Disney will halt share repurchases until Disney can better balance cash and debt as it spends billions in cash to acquire the assets.
“Given our pending acquisition of Fox and the expected increase in leverage in order to fund the $35.7 billion cash component, we will not be an active buyer of our stock until our total leverage ratios return to levels consistent with a single-A credit rating,” McCarthy said.
Disney gained 0.6% to $116.60 in the regular session Tuesday. Shares have increased 8.4% this year through the close of Tuesday’s session, as the S&P 500 index SPX, +0.28% increased 6.9%.
