Disney shares fall after earnings and revenue miss, sales growth to slow after record year

Walt Disney Co. ended the fiscal year with record sales and its best revenue growth in more than 25 years, but executives missed expectations for fourth-quarter revenue and sales, predicting slower sales growth next year. % Tuesday afternoon.

Disney DIS
In the fiscal fourth quarter, net income of $162 million, or 9 cents per share, rose to $20.15 billion from $18.53 billion a year earlier, but fell well short of expectations by $1 billion. After adjusting for depreciation and certain investment changes, Disney reported earnings of 30 cents a share, up from 37 cents a year ago.

Analysts polled by FactSet had expected adjusted earnings of 56 cents a share on revenue of $21.27 billion, on average.

Disney executives blamed a number of factors for the revenue loss, including lower content sales due to fewer theatrical films on the calendar; underperformance of parks and media units; and fourth quarter seasonality is the lowest for margins.

For the full fiscal year, Disney posted record sales of $82.72 billion, up 22% from the previous year, the strongest annual sales growth for Disney since fiscal 1996, according to FactSet records. Profits rose to $3.19 billion from $2.02 billion a year earlier, but nowhere near Disney’s pre-pandemic profits, which hit eight figures in both 2019 and 2018.

In a conference call Tuesday afternoon, Chief Financial Officer Christine McCarthy suggested that revenue and profit growth in the current fiscal year will slow to single digits on a percentage basis, missing Wall Street expectations. Analysts’ average revenue forecast for Disney in the new fiscal year suggested revenue growth of about 13.9% and operating income growth of about 17.4%, according to FactSet.

“Taking it all together, assuming we don’t see a meaningful change in the macroeconomic environment, we currently expect the company’s total revenue and segment operating income to grow at a high single-digit rate for fiscal 2023 compared to fiscal 2022,” McCarthy said.

Disney shares fell more than 10% at times in after-hours trading before closing up 6.8%. That was after ending the regular session down 0.5% at $99.94.

Disney has been helped by a return of visitors to its theme parks in the third year of the COVID-19 pandemic, as well as a recovering movie business. A major attraction for investors has been Disney’s increased streaming efforts — total streaming subscribers have surpassed Netflix Inc.’s NFLX.
Subscribers grew last quarter and extended its lead in Tuesday’s report, with Disney adding 12.1 million net new subscribers, while analysts on average were expecting 10.4 million.

Disney’s streaming growth has hampered its profitability as the company spends to add content to its streaming services to compete with Netflix. Those days are coming to an end as Disney struggles with profitability.

“Disney+’s rapid growth in just three years since its launch is a direct result of our strategic decision to invest heavily in creating incredible content and expanding the service internationally, and we expect our DTC operating losses to decrease in the future and Disney+ to continue to grow. We will achieve profitability in fiscal year 2024, assuming we don’t see a meaningful change in the economic environment,” Disney CEO Bob Chapek said when announcing the results. “By realizing our costs and realizing the benefits of the price increases and Disney+ ad support that will take place on December 8, we believe we are on track to achieve a profitable broadcast business that will drive continued growth and create shareholder value long into the future.” .”

Disney’s largest business segment, media and entertainment distribution, reported sales of $12.73 billion in the quarter, down from $13.08 billion a year ago; Analysts on average had predicted $13.86 billion. Direct-to-consumer sales, which include streaming services and some international products, were $4.9 billion, compared with an average analyst estimate of $5.4 billion.

Disney’s meteoric rise as the leader of the video streaming market after Netflix unveiled a rival bid on Nov. 3 is likely to continue after the ad-supported service debuts in the U.S. next month, according to Wall Street analysts. Disney leaned into it. Netflix Inc. Building on established mega-franchises like Star Wars and the Marvel Cinematic Universe to outpace NFLX,
Apple Inc. AAPL,
Comcast Corp. CMCSA,
Warner Bros. Discover Inc. WBD,
Amazon.com Inc. AMZN,
Paramount Global PARA
and others.

Read more: Disney overtakes Netflix as streaming leader and is expected to increase its lead

Disney’s television networks had sales of $6.34 billion, compared to analysts’ average estimates of $6.64 billion. Content sales and licensing, the category that includes Disney’s film business, generated revenue of $1.74 billion, versus analysts’ expectations of $2.08 billion.

The company’s signature theme parks and product sales business rose to $7.43 billion from $5.45 billion a year ago. Analysts’ average estimate was $7.46 billion.

Disney shares are down 35.5% this year, the broader S&P 500 index SPX
20% decreased.

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