Going into media giant Walt Disney’s (NYSE: DIS) second-quarter financial report, the company was fresh off record performance of Marvel’s Black Panther, which broke into the top 10 in all-time worldwide box office, bumping Star Wars: The Last Jedi from the No. 9 position and generating more than $1.338 billion in global ticket sales.
Investors were hoping that the record Marvel showing combined with robust visits to Disney parks and resorts would be enough to continue the return to growth that began last quarter — and that’s exactly what happened.
The raw numbers
Metric Q2 2018 Q2 2017 Year-Over-Year Change
Revenue $14.548 billion $13.336 billion 9%
Segment operating income $4.237 billion $3.996 billion 6%
Net income $2.937 billion $2.338 billion 23%
Adjusted earnings per share $1.84 $1.50 23%
Free cash flow $3.463 billion $2.345 billion 48%
Data source: Disney Second-Quarter 2018 Financial Release. Chart by author.
For the just-completed quarter, Disney reported revenue of $14.548 billion, up 9% year over year and exceeding analysts’ consensus estimates for revenue of $14.08 billion. Net income grew 23% year over year, generating adjusted earnings per share of $1.84, an increase of 23% over the prior-year quarter and handily beating expectations for $1.69.
On a GAAP basis, earnings per share grew 30% to $1.95.
Revenue Source Q2 2018 Q2 2017 Year-Over-Year Change
Media networks $6.138 billion $5.946 billion 3%
Parks and resorts $4.879 billion $4.299 billion 13%
Studio entertainment $2.454 billion $2.032 billion 21%
Consumer products $1.077 billion $1.057 billion 2%
Data source: Disney Second-Quarter 2018 Financial Release. Chart by author.
Revenue was up across all of the company’s operating segments, marking the second successive quarter of year-over-year revenue growth.
Media networks revenue grew 3% year over year to $6.1 billion, while operating income for the segment fell 6% to $2.08 billion. Disney blamed the drop on higher programming costs at ESPN, which was partially offset by affiliate revenue growth and higher advertising. The company also said that investments in BAMTech — the company’s streaming segment — played a part in the decline.
The parks and resorts business handed in another strong performance, with revenue of $4.88 billion that grew 13% compared to the prior-year quarter on stronger attendance and guest spending. Operating income in the segment grew 27% year over year to $954 million.
Studio entertainment also shined, with revenue that increased 21% over the prior-year quarter on the strong box office success of Black Panther. Operating income of $847 million was up 29% year over year.
Consumer products revenue increased 2% year over year, though operating income fell 4% to $354 million as the result of lower same-store sales and an unfavorable currency impact.
The strength in the studio segment was primarily the result of the blockbuster success of Black Panther, which Disney’s chairman and CEO Bob Iger called out on the conference call.
It’s hard to come up with enough superlatives to adequately express the tremendous work that team is doing … the incredible performance of Black Panther is just one of many examples. This groundbreaking movie opened to huge acclaim and record-breaking box office, instantly becoming a cultural phenomenon, inspiring people of all ages, and breaking down age-old industry myth.
Looking ahead
Disney doesn’t provide quarterly guidance, but analysts’ consensus estimates for the upcoming third quarter are for revenue of $15.3 billion, which would represent growth of 7.5% compared to the year-ago quarter. Investors’ expectations have been rising, based on the box office success of Black Panther and Avengers: Infinity War. Consensus estimates for earnings have increased to $1.96 per share, which would represent growth of 24% year over year.
While investors seemed unimpressed with the performance, Disney continues to make all the right moves to position the company for future success.
