The Walt Disney Company stock closed yesterday at $89.97 a share before reporting their earnings this morning for the second quarter (Q3) of fiscal year 2024 which ended on June 29, 2024. According to the earnings report, for the quarter increased to $23.2 billion from $22.3 billion in the prior-year quarter. Income (loss) before income taxes improved to income of $3.1 billion in the current quarter from a loss of $0.1 billion in the prior-year quarter. Diluted earnings per share (EPS) was $1.43 for the current quarter compared to a loss of $0.25 in the prior-year quarter. Excluding certain items, diluted EPS for the quarter increased to $1.39 from $1.03 in the prior-year quarter.

“Our performance in Q3 demonstrates the progress we’ve made against our four strategic priorities across our creative studios, streaming, sports, and Experiences businesses,” said Robert A. Iger, Chief Executive Officer, The Walt Disney Company. “This was a strong quarter for Disney, driven by excellent results in our Entertainment segment both at the box office and in DTC, as we achieved profitability across our combined streaming businesses⁽¹⁾ for the first time and a quarter ahead of our previous guidance. Despite softer third quarter performance in our Experiences segment, adjusted EPS⁽¹⁾ for the company was up 35%, and with our complementary and balanced portfolio of businesses, we are confident in our ability to continue driving earnings growth through our collection of unique and powerful assets.”

Statements from Bob Iger in Q3-FY24 Earnings Report

In the third fiscal quarter of 2024, Disney achieved strong double-digit percentage growth of 19% for total segment operating income and 35% for adjusted EPS. Entertainment segment operating income nearly tripled year over year in Q3, due to significantly improved results at Direct-to-Consumer and Content Sales/Licensing and Other. Entertainment Direct-to-Consumer’s better-than-expected Q3 performance, combined with our profitable results at ESPN+, resulted in positive profitability at our combined streaming businesses for the first time and one quarter ahead of the company’s previous guidance of achieving profitability in Q4. The success of Inside Out 2, which became the highest-grossing animated film of all time, demonstrated the renewed creative strength of Disney’s studios and drove strong outperformance at Content Sales/Licensing and Other. Surrounding Inside Out 2’s release, the original Inside Out (2015) helped drive more than 1.3 million Disney+ sign-ups and generated over 100 million views globally since the first Inside Out 2 teaser trailer dropped. ESPN operating income grew by 4%, while Star India results were lower versus the prior year, resulting in Sports segment operating income declining by 6% in Q3. Domestic ESPN advertising revenue increased 17% year over year. Q3 Experiences revenue increased by 2% and segment operating income decreased by 3%. Segment revenue growth was impacted by moderation of consumer demand towards the end of Q3 that exceeded our previous expectations. Despite this demand dynamic, other parts of the portfolio delivered improved results versus the prior year, including Disney Cruise Line, Consumer Products and some of our international sites. While results at Domestic Parks decreased modestly in the quarter, attendance was comparable year over year and per capita spending was slightly up. At Experiences, was a growth driver in the second quarter, with revenue growth of 10%, segment operating income growth of 12%, and margin expansion of 60 basis points versus the prior year. Although the third quarter’s segment operating income is expected to come in roughly comparable to the prior year, TWDC continues to expect robust operating income growth at Experiences for the full year.

At our Experiences segment, we expect that the demand moderation we saw in our domestic businesses in Q3 could impact the next few quarters. While we are actively monitoring attendance and guest spending and aggressively managing our cost base, we expect Q4 Experiences segment operating income to decline by mid single digits versus the prior year, reflecting these underlying dynamics as well as impacts at Disneyland Paris from a reduction in normal consumer travel due to the Olympics, and some cyclical softening in China.

The Experiences segment (which includes Disney Cruise Line) recorded a decrease in operating income at the domestic parks and experiences which is attributed to higher costs driven by inflation, increased technology spending and new guest offerings, partially offset by the comparison to depreciation in the prior-year quarter related to the closure of Star Wars: Galactic Starcruiser and cost saving initiatives.

International parks and experiences’ operating results for the current quarter were comparable to the prior-year quarter due to higher volumes attributable to increases in attendance and occupied room nights, guest spending growth due to higher per room spending at our resorts, and an increase in costs due to new guest offerings, inflation and increased depreciation.

Experiences revenue grew 2% year over year, while segment operating income came in short of our prior guidance, declining by 3% in the third quarter. Segment revenue growth was impacted by moderation of consumer demand towards the end of the third quarter that exceeded our previous expectations. Despite this demand dynamic, other parts of the portfolio delivered improved results versus the prior year, including Disney Cruise Line, Consumer Products, and some of our international sites. While results at Domestic Parks decreased modestly in the quarter, attendance was comparable year over year and per capita spending was slightly up.

We expect that the demand moderation we saw in our domestic businesses in Q3 could impact the next few quarters. While we are actively monitoring attendance and guest spending and aggressively managing our cost base, we expect Q4 Experiences segment operating income to decline by mid-single digits versus the prior year, reflecting these underlying demand dynamics as well as impacts at Disneyland Paris from a reduction in normal consumer travel due to the Olympics, and some cyclical softening in China.

So far this quarter, we continue to see strong demand at Disney Cruise Line, although results in fiscal Q4 will reflect pre-launch expenses for the Disney Adventure and Disney Treasure.

We continue to manage our diversified Experiences portfolio with a focus on making disciplined investments, managing operating expenses, and executing our long-term strategy to drive attractive and sustainable returns. Our investment in technology provides operational flexibility to manage the business through demand cycles, enabling us to optimize attendance and manage costs in real time. And despite near-term challenges, we expect this segment to continue to drive meaningful earnings and cash flow growth over the long term.

The Walt Disney Company has credit facilities to finance a significant portion of the contract price of two new cruise ships, which are scheduled to be delivered in fiscal 2025 and fiscal 2026 . Under the facilities, $1.1 billion became available in August 2023 and $1.1 billion became available in August 2024. Each tranche of financing may be utilized within a period of 18 months from the initial availability date. If utilized, the interest rates will be fixed at 3.80% and 3.74%, respectively, and the loan and interest will be payable semi-annually over a 12-year period from the borrowing date. Early repayment is permitted subject to cancellation fees.

Capital expenditures increased to $3.9 billion from $3.6 billion due to higher spend on cruise ship fleet expansion and new attractions at the Experiences segment, partially offset by lower spend on Corporate facilities.

There were no additional details regarding Disney Cruise Line in the press release. We will update this post if we hear anything during the earnings call and Q&A.

For more information and an overall report click over to the Q3-2024 Earnings Report.