Walt Disney Co. ended its fiscal year with record sales and its best revenue growth in more than 25 years, but executives predicted much slower sales increases in the year ahead while missing expectations for fourth-quarter earnings and sales, sending shares down about 7% on Tuesday afternoon.
reported fourth-quarter net income of $162 million, or 9 cents a share, on sales of $20.15 billion, down from $18.53 billion a year ago, but more than $1 billion dollars less than expected. After adjusting for depreciation and some investment changes, Disney reported earnings of 30 cents per share, compared to 37 cents per share a year ago.
Analysts polled by FactSet on average had expected adjusted earnings of 56 cents per share on revenue of $21.27 billion.
Disney executives blamed a number of factors for the shortfall, including declining content sales as they had fewer theatrical movies on the schedule; underperformance of parks and media divisions; and the seasonality of its fourth quarter, which tends to be the lowest for margins.
For the full fiscal year, Disney posted record sales of $82.72 billion, more than 22% higher than the previous year, the strongest annual sales growth for Disney since fiscal 1996, according to FactSet folders. Profit rose to $3.19 billion from $2.02 billion the previous year, but was nowhere near Disney’s pre-pandemic profits, which hit eight figures in 2019 and 2018.
On a Tuesday afternoon conference call, however, chief financial officer Christine McCarthy suggested revenue and profit growth would slow to single-digit percentage points in the current fiscal year, missing Wall Street expectations. According to FactSet, analysts’ average revenue projections for Disney in the new fiscal year suggest revenue growth of about 13.9% and operating profit growth of about 17.4%.
“Putting all of this together, assuming we don’t see a material change in the macroeconomic climate, we currently expect the company’s total fiscal 2023 revenue and operating profit of the segment are both growing at a high single-digit percentage rate from fiscal 2022,” McCarthy said. .
Disney shares sometimes plunged more than 10% in after-hours trading before closing down 6.8%. This was after ending the regular session down 0.5% at $99.94.
Disney has been helped by the return of visitors to its theme parks in the third year of the COVID-19 pandemic, as well as the resumption of movie theaters. The main attraction for investors, however, has been the growth of Disney’s streaming efforts – total streaming subscribers have overtaken Netflix Inc.’s NFLX,
total subscribers last quarter, and extended its lead in Tuesday’s report, with Disney adding 12.1 million net new subscribers, while analysts on average had expected 10.4 million.
Disney’s streaming growth has hampered its profitability, however, as the company spends to add content to its streaming services to compete with Netflix. Those days seem to be coming to an end as Disney struggles to make a profit.
“Disney+’s rapid growth in just three years since launch is a direct result of our strategic decision to invest heavily in creating incredible content and rolling out the service internationally, and we expect our revenue losses to continue. DTC operations will shrink going forward and that Disney+ will continue to achieve profitability in fiscal year 2024, assuming we don’t see a material change in the economic climate,” Disney Chief Executive Bob Chapek said. in a press release announcing the results. “By realigning our costs and realizing the benefits of price increases and our ad-supported Disney+ tier starting December 8, we believe we will be on the path to a profitable streaming business that will drive continued growth. and will generate long-term shareholder value. .”
Disney’s largest business segment, media and entertainment distribution, had sales of $12.73 billion in the quarter, up from $13.08 billion a year ago; analysts expected an average of $13.86 billion. Direct-to-consumer sales, which include streaming services as well as some international products, brought in $4.9 billion, versus an analyst forecast of $5.4 billion on average.
The trajectory of Disney’s meteoric rise as market leader in video streaming is set to continue once its ad-supported service makes its U.S. debut next month, Wall Street analysts say, after Netflix launched its competing offer on November 3. Disney leaned heavily on its stable of mega-franchises such as “Star Wars” and the Marvel Cinematic Universe to overtake Netflix Inc. NFLX,
Comcast Corp. CMCSA,
Warner Bros. Discover Inc. WBD,
Amazon.com Inc. AMZN,
Paramount Global PARA,
Read more: Disney has overtaken Netflix as the leader in streaming and should widen its lead
Disney’s television networks generated sales of $6.34 billion, while average analyst estimates were $6.64 billion. Content sales and licensing, a category that includes Disney’s film business, posted revenue of $1.74 billion against analyst expectations of $2.08 billion.
The company’s theme parks and product sales business grew to $7.43 billion in revenue from $5.45 billion a year ago. The average analyst estimate was $7.46 billion.
Disney shares are down 35.5% this year, while the broader S&P 500 SPX index,
decreased by 20%.
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