Disney Reports Q3
The Walt Disney Company reported earnings for its third fiscal quarter and nine months ended June 29, 2013. Diluted earnings per share (EPS) for the third quarter of $1.01 was equal to the prior-year quarter. Excluding certain items affecting comparability, EPS for the quarter increased 2 percent to $1.03 compared to $1.01 in the prior-year quarter. Diluted EPS for the nine months ended June 29, 2013, was $2.61 compared to $2.44 in the prior-year period.
Operating income at Cable Networks increased $229 million to $2.1 billion for the quarter due to growth at ESPN, A&E Television Networks (AETN), and the domestic Disney Channels, partially offset by a decrease at ABC Family. Higher operating income at ESPN was due to increased affiliate revenues and, to a lesser extent, higher advertising revenues, partially offset by increased programming and production costs. Increased affiliate revenues at ESPN were due to contractual rate increases and higher recognition of previously deferred revenues related to annual programming commitments. During the quarter, ESPN recognized $274 million of previously deferred revenue compared to $210 million in the prior-year quarter. Growth in ESPN advertising revenues was primarily due to an increase in units sold and higher rates, partially offset by lower ratings. The increase in programming and production costs was due to contractual rate increases for Major League Baseball rights and production costs for new X Games events. Higher equity income from AETN reflected higher advertising and affiliate revenues, along with the benefit of the increase in the Company’s ownership interest from 42 percent to 50 percent. Growth at the domestic Disney Channels was due to higher affiliate revenues from contractual rate increases and higher program sales. The decrease in operating income at ABC Family was due to higher programming costs driven by more hours of original scripted programming.
Operating income at Broadcasting decreased $55 million to $213 million for the quarter due to higher primetime programming costs, lower program sales, and decreased advertising revenue, partially offset by higher affiliate revenues. Higher primetime programming costs were driven by a shift of hours from self-produced to acquired programming, which had a higher average cost per hour compared to programming in the prior-year quarter. The decline in program sales reflected higher sales of Grey’s Anatomy and Castle in the prior-year quarter. Lower advertising revenue was driven by a decline in network ratings and a decrease in rates and political advertising at the owned television stations, partially offset by higher network rates and growth in online advertising. Affiliate revenue growth was primarily due to higher contractual rates.
Parks and Resorts
Parks and Resorts revenues for the quarter increased 7 percent to $3.7 billion and segment operating income increased 9 percent to $689 million. Operating income growth for the quarter was driven by increases at domestic parks and resorts. Parks and Resorts results for the quarter include an unfavorable impact due to a shift in the timing of the Easter holiday relative to Disney’s fiscal periods.
Higher operating income at Disney’s domestic parks and resorts was primarily due to increased guest spending, occupied room nights, and attendance at Walt Disney World Resort and Disneyland Resort, partially offset by higher costs. Increased guest spending was due to higher average ticket prices and food and beverage spending. Higher costs were driven by spending on new guest offerings and labor and other cost inflation. Significant new guest offerings include MyMagic+ and Disney’s Art of Animation Resort, which opened in the third quarter of the prior year, and the expansion of the Magic Kingdom at the Walt Disney World Resort.
Studio Entertainment revenues decreased 2 percent to $1.6 billion and segment operating income decreased $112 million to $201 million, primarily due to a decrease in worldwide theatrical distribution results. Lower theatrical results reflected pre-release marketing costs for The Lone Ranger and the performance of Marvel’s Iron Man 3 in the current quarter compared to Marvel’s The Avengers in the prior-year quarter, partially offset by better performance of Monsters University in the current quarter compared to Brave in the prior-year quarter.
Consumer Products revenues increased 4 percent to $775 million and segment operating income increased 5 percent to $219 million. Higher operating income was due to increases in Merchandise Licensing and Retail businesses. The increase in operating income at Merchandise Licensing was due to the inclusion of Lucasfilm and the performance of Monsters University and Disney Junior merchandise, partially offset by lower Spider-Man revenue and higher revenue share with the Studio Entertainment segment. The increased revenue share reflected a higher mix of revenues from properties subject to revenue share in the current quarter. The Retail business higher operating income was driven by comparable store sales growth in North America and Japan and higher online sales in North America.
Interactive revenues for the quarter decreased 7 percent to $183 million and segment operating results decreased by $16 million to a loss of $58 million. Lower operating results were primarily due to lower minimum guarantee recognition, a decline in console game sales as there were no new releases in the current quarter, and a decrease in Disney’s social games business due to a favorable acquisition accounting adjustment recognized in the prior-year quarter. These decreases were partially offset by growth in Disney’s Japan mobile business.