(Bloomberg) -- Walt Disney Co. gave a mixed picture as it reported third-quarter results on Wednesday, with weakness at its famed theme parks offsetting its first-ever profit in streaming.
Disney’s US theme parks, which were buffeted by rising costs and tepid demand, missed Wall Street estimates for sales and profit. The company said its Disneyland Paris park suffered from a reduction in summer travel due to the Olympics, and noted some “cyclical softening in China.”
Pressure on attendance will linger for “the next few quarters,” the company said Wednesday, after previously predicting a rebound in the final months of fiscal 2024. Disney now forecasts a mid-single-digit decline in profit in the current fiscal fourth quarter. The company is responding by “actively monitoring attendance and guest spending, and aggressively managing our cost base.”
The shares fell 3% to $87.28 in New York.
Chief Financial Officer Hugh Johnston noted that revenue in the parks division was actually up 2% in the quarter, so it’s still growing. In an interview with Bloomberg TV, Johnston said “lower income consumers are a little stressed and shaving a little bit off their time at the parks, and higher income consumers are traveling overseas.”
He said the company sees the shift as “a few quarters of slight perturbation in numbers,” and that “we’ll be back as we get to the middle of next year.” Parks revenue will be flat in the fourth quarter, he said on a call with analysts.
In July, rival Comcast Corp. reported quarterly revenue that missed analysts’ estimates, dragged down in part by a slowdown at its Universal Studios theme parks.
Disney and Comcast parks rebounded strongly from the Covid-19 pandemic, but executives at both companies have signaled that demand is starting to normalize after an initial surge.
“A slowdown at Disney’s parks was expected, but the magnitude of the decline is worrisome and suggests that the demand slump may not be transitory, said Bloomberg Intelligence analyst Geetha Ranganathan. “Streaming, however, was a bright spot, with the combined platforms turning profitable ahead of expectations.”
The softer results from the experiences segment offset an otherwise surprisingly positive report. Earnings rose to $1.39 a share, excluding some items, beating the $1.19 average estimate of analysts surveyed by Bloomberg. The company raised its forecast for earnings growth this year to 30% from an earlier target of 25%.
The Burbank, California-based company reported a $254 million profit at its film studio, ending a string of losses, thanks to the June release of Inside Out 2 from the Pixar animation unit. Disney also reported a $47 million profit in streaming, the first since the flagship Disney+ streaming service debuted in 2019. That number includes Hulu and ESPN+.
The results mark an overall win for Disney’s entertainment division, which had been held back in recent years by misfires in the movie division and billions of dollars in streaming losses. Chief Executive Officer Bob Iger, who returned to lead Disney in 2022, had made fixing the company’s film business and achieving profitability in streaming two key priorities of his second tenure.
Revenue for the quarter rose 3.7% to $23.2 billion, beating projections of $23.1 billion.
To keep streaming profitable, Disney is raising the prices of its online video services, announcing on Tuesday that a subscription to Disney+ will climb as much as 25%.
In securities filing on Wednesday, Disney said it may have to pay $5 billion more to acquire Comcast Corp.’s 33% minority stake in Hulu.
The two sides have disagreed over the fair value of Hulu and have entered into arbitration proceedings.
In the securities filing, Disney said that during the initial phase of the appraisal process, its own appraiser arrived at a valuation that falls before the guaranteed floor value, while NBC Universal’s appraiser arrived at a valuation “substantially in excess” of the guaranteed floor.
“If the third appraiser’s equity fair value determination were between the valuations of the company’s and NBCU’s appraisers, the incremental amount would likewise be between zero and approximately $5 billion,” according to the filing. Disney has already paid Comcast $8.6 billion for its Hulu position. A final decision on the arbitration is expected in fiscal 2025, Disney said.
(Updates with analyst comment and details on Hulu arbitration)
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