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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.
The results come almost a year after Bob Iger returned to Disney as chief executive to replace his handpicked successor, Bob Chapek. They reflected “significant progress” over the past year, Iger said, which had allowed the company “to move beyond the period of fixing and begin building our businesses again”.
Iger said he was personally working to improve the content coming out of Disney’s studios, which he said had suffered in part because of the pandemic. “Performance from a quality perspective has not been up to the standard we set for ourselves,” he said. “We lost our focus.”
The studios would now “make less and focus more on quality”, Iger said.
The group’s earnings of 82 cents a share in the fourth quarter exceeded Wall Street forecasts of 70 cents, thanks in part to a 31 per cent increase in operating income at its theme parks and experiences business. It raised its target for annualised cost cuts from $5.5bn to $7.5bn.
Iger said his priorities included achieving profitability in Disney’s streaming business, transforming the ESPN network into the “pre-eminent digital sports platform”, reigniting the creative spark at its film studios and stoking growth at its theme parks.
Disney’s shares have fallen more than 15 per cent over the past year, prompting a new challenge from activist investor Nelson Peltz of Trian Partners, who is seeking three board seats. The shares were up 3 per cent in after-hours trade.
In a call with investors, Disney said it had cut 8,000 jobs, reduced its content spending and made plans to reduce costs further — steps it said would lead to free cash flow of about $8bn in fiscal 2024.
Investors have been focused on Disney’s cash position as it prepares to acquire Comcast’s 33 per cent stake in Hulu. Disney will pay an initial $8.6bn for the stake in December, but the final sum will depend on an appraisal process which is expected to conclude next year.
Disney said its improved outlook for cash flow would let it reinstate a small dividend, having suspended payments to shareholders during the pandemic. Kevin Lansberry, interim chief financial officer, also floated the idea of a share buyback programme.
Those plans come as Disney is moving aggressively to cut its losses in streaming. Disney’s streaming business lost $387mn in the quarter, down sharply from the $1.47bn loss a year ago that shocked the markets and contributed to Chapek’s dismissal. The company held to its target of reaching profitability in streaming by the fiscal fourth quarter of 2024.
The Disney+ streaming service added nearly 7mn subscribers, helped by the addition of Elemental, Little Mermaid and Guardians of the Galaxy Vol. 3, which were released in cinemas earlier in the year.
However, subscriptions fell 7 per cent at Disney+ Hotstar, the group’s streaming service in India, where Iger is examining whether to sell stakes in its Disney Star businesses or potentially shed its entire holding.
“We’re considering our options there,” Iger said on Wednesday. “We’d like to stay in that market but we also are looking to see whether we can strengthen our hand.”
Disney’s traditional television networks, including ABC, reported a 9 per cent revenue decline in the fourth quarter due to a weak advertising market. But programming and production costs fell in part due to the Hollywood strikes.
Despite the decline in TV, Iger said he was optimistic about the prospects of transforming ESPN into a digital sports business. A full-service ESPN streaming service would ultimately be included in a bundle with Disney+ and Hulu, he added. “If you think about the portfolio of streaming assets that we will have, Hulu, Disney+ and ESPN, that’s a very, very strong hand.”
