Amid Weaknesses in Cable, Disney’s Third-Quarter Earnings Buoyed by Theme Parks

Disney Q3 2017 Earnings Beat Expectations
Courtesy of Disney

Continued weakness in its cable network division caused Disney’s third-quarter performance to slide, missing revenue projections, but brisk sales at Disney theme parks helped the company top earnings expectations, nonetheless.

The threat of digital rivals like Netflix and Amazon also forced Disney to speed up the purchase of a majority stake in BAMTech, a digital-streaming company. It already has a 33% stake in the company, but that will now grow to 75%.

“We accelerated our right to buy control of the service so we can have more control of our own destiny,” Iger said.

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Iger also couched the move as going on the offensive as it seeks to dominate in the rapidly shifting media landscape.

The major development overshadowed what was a tough third quarter for Disney, which saw its operating income tumble 10% to $4 billion.

Across its four major divisions — media networks, parks and resorts, studio entertainment, and consumer products and interactive media — all but the the theme parks posted reduced revenues in the quarter ending July 1.

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The brightest spot was Disney’s theme parks and resorts, which saw its third-quarter revenues rise 12% to nearly $5 billion. The growth came from Disney’s overseas parks, including Shanghai Disney Resort, which has now welcomed more than 13 million guests.

The company is also continuing to invest in its theme parks. Disney has planned new attractions, including Star Wars-themed lands that are under construction at both Disneyland in Anaheim and Walt Disney World Resort in Orlando.

Its cable networks’ revenue also fell in the third quarter, sliding 3% to $4.1 billion. Operating income dropped 23% to $1.5 billion.

The decrease at ESPN was the result of higher programming costs, reduced ad revenue, and severances and other termination costs related to the layoffs at the sports network.

Disney executives had warned that this quarter’s film division performance would likely be less profitable than last year’s, considering the massive success of films like “Captain America: Civil War,” “Finding Dory,” and “The Jungle Book.” This year’s third fiscal quarter saw the releases of “Guardians of the Galaxy Vol. 2,” “Pirates of the Caribbean: Dead Men Tell No Tales,” and “Cars 3.” While all three performed well, they did not match the box office performance of last year’s slate of films.

Disney also disclosed in the earnings report that it shelled out at least $177 million in legal costs for the quarter. The  bulk of that is believed to be connected to the settlement of  the long-running defamation suit against ABC News in connection with its “pink slime” reports in 2012 about a meat product sold by South Dakota-based Beef Products Inc. The case was settled in June midway through the trial. Attorneys for BPI were quoted as saying that the settlement was larger than $177 million, suggesting that insurance payments would increase the total.

Disney stock tumbled about 4% from its Tuesday close of $106.98.

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