Walt Disney reported stronger-than-expected earnings for its most recent quarter and forecast that it would cut another $2bn from its costs while generating higher levels of cash in the coming year.
Results come nearly a year after Bob Iger, his hand-picked successor Bob Chapek, returned to Disney to become chief executive. Iger stated that the results reflected “significant improvements” made over the last year. This allowed Disney to “move beyond the period where we were fixing our businesses and begin building them again”.
Iger said that he personally worked to improve the content produced by Disney Studios, which he claimed had been affected in part by the pandemic. He said that the quality of performance was not up to what he had set. “We lost our focus.”
Iger stated that the studios will now “focus more on quality and make less”.
The group’s fourth-quarter earnings of 82c per share exceeded Wall Street expectations of 70c, in part due to a 31% increase in operating income in its theme parks and experience business. It increased its target of annualised cost reductions from $5.5bn up to $7.5bn.
Iger’s priorities include achieving profitability for Disney’s streaming service, turning ESPN into the “preeminent digital sport platform”, reinvigorating the creative spirit at the film studios, and driving growth at the theme parks.
Disney’s stock has fallen by more than 15% in the last year. Nelson Peltz, an activist investor from Trian Partners who wants three board seats, is now challenging Disney. After-hours trading saw the shares rise by 3 percent.
Disney told investors that it has cut 8,000 positions, reduced content expenditures and plans to further reduce costs. It said these steps would result in a free cash flow of $8bn by fiscal 2024.
Investors are focusing on Disney’s financial position as it prepares to acquire Comcast’s 33% stake in Hulu. Disney will pay $8.6bn initially for the stake, but the final amount will depend on the outcome of an appraisal process that is expected to be completed next year.
Disney announced that its improved cash flow outlook would allow it to reinstate a small payout, after having suspended payments during the pandemic. Kevin Lansberry’s interim chief financial officer floated the idea for a share-buyback program.
Disney has been aggressively cutting its streaming losses. Disney’s streaming lost $387mn during the quarter. This is a sharp drop from the $1.47bn losses a year earlier that shocked the market and led to Chapek’s dismissal. The company remained committed to reaching profitability in streaming before the fourth quarter of fiscal 2024.
Disney+ has added 7 million subscribers thanks to the addition of Elemental and Guardians of the Galaxy Vol. 3 were released earlier this year in cinemas.
The group’s streaming service, Disney+ Hotstar in India, saw a 7 percent drop in subscriptions. Iger is now evaluating whether or not to sell stakes in the Disney Star businesses, and possibly even its entire holding.
Iger stated on Wednesday that “we’re looking at our options.” We’d like stay in the market, but we are also looking at ways to strengthen our position.
Disney’s traditional TV networks, including ABC reported a revenue decline of 9 percent in the fourth quarter, due to a weakening advertising market. The Hollywood strikes also lowered production and programming costs.
Iger was upbeat about the chances of turning ESPN into a digital business despite the decline in television. He added that a full-service ESPN stream service would be included as part of a Disney+ and Hulu bundle. If you look at the streaming assets we’ll have, Hulu Disney+, and ESPN, it’s a very powerful hand.