The rejuvenated Disney kept rolling Wednesday, delivering first-quarter results that beat expectations alongside reasons for optimism in the year ahead. Revenue in the three months ended Dec. 31 rose 5% on an annual basis to $24.69 billion, topping expectations of $24.62 billion, according to estimates compiled by LSEG. Adjusted earnings per share (EPS) totaled $1.76, exceeding the consensus estimate of $1.45, LSEG data showed. On a year-over-year basis, adjusted EPS jumped 44%. Shares of Disney fell about 1% to a little over $112 apiece. The stock has been volatile Wednesday. Shares were lower in premarket trading when Disney’s conference call began at 8:30 a.m. ET, but turned positive by the end as CEO Bob Iger and finance chief Hugh Johnston painted an upbeat picture of the future. Shares then opened higher and traded as high as $118.59 intraday, before giving up their gains and falling back into negative territory. Disney Why we own it: We value Disney for its best-in-class theme park business, which has immense pricing power. We also believe there’s more upside in the stock as management cuts costs, expands profit margins through its direct-to-consumer (DTC) products and finds new ways to monetize ESPN. Competitors: Comcast , Netflix , Warner Bros Discovery and Paramount Global Last buy: July 29, 2024 Initiation: Sept. 21, 2021 Bottom line We’re reiterating our buy-equivalent 1 rating and price target of $130 a share. The market seems a little confused about how to grade Disney’s report, evidenced by the stock’s fluctuation between gains and losses. But we are clear-eyed about the entertainment giant. “This is a company really on the move, doing a lot of good things,” Jim Cramer said on Wednesday’s Morning Meeting, recommending that investors who just joined the Club take a hard look at owning Disney. Jim advised letting the stock shake itself out Wednesday and then look to buy Thursday. Disney’s cost-cutting efforts and the strength of its beloved brand were on full display in Wednesday’s results. While its top line narrowly topped Wall Street expectations, its bottom line performance leaped past them, driven by a $730 million beat on segment operating income and a nearly 3 percentage point beat on operating income margin. It’s a much more profitable company than a few years ago and recent box office success suggests Disney’s creative arm is finally throwing its fastball for strikes again. Some investors may be disappointed that despite the strong earnings beat, Disney merely reiterated its full-year guidance of high-single-digit EPS growth. When asked about that decision on the call with investors, Johnston said executives felt it would be premature to up the guide this early in the year, given the “rapidly evolving” economic environment. Of course, we would’ve love to see a beat and raise, but it’s hard to really disagree with Johnston’s judgement. Disney is certainly not the first company to be conservative with guidance at this stage in their fiscal year. We declared in November that Disney was “back” after its fourth-quarter earnings report. The first quarter was more evidence that’s the case. DIS 1Y mountain Disney’s stock performance over the past 12 months. Commentary Disney’s entertainment results, in particular, demonstrated the company’s improved profitability following a concerted push from Iger upon returning to the CEO role in November 2022. All three prongs of its entertainment segment — linear networks including ABC and FX; direct-to-consumer streaming, home to Disney+ and Hulu; and content sales and licensing, which consists of theatrical distributions and licensing content to third-party platforms, among others — came up slightly short on revenues, as shown in the chart below. And yet, all three units surpassed operating income expectations, with the most notable beat coming from the most important of the three: DTC. Disney’s streaming unit turned in a first-quarter profit of $293 million, well ahead of the $178 million estimate and a significant improvement over last year’s $138 million loss. It also represented a sequential acceleration from a $253 million profit in three months ended Sept. 31. Iger has successfully turned Disney’s DTC streaming unit from a money pit that frustrated investors into a source of growing profits that offsets secular declines in the traditional linear TV business. Perhaps one blemish with the DTC segment was a decline in Disney+ subscribers, which ended the period at 124.6 million compared with 125.3 million at the end of September. The drop came as Disney instituted a $2 price hike in mid-October for both its ad-supported and ad-free offering, which now cost $9.99 a month and $15.99 a month, respectively. That disclosure also hit investors two weeks after rival Netflix said it added a record 19 million subscribers in its October-to-December quarter. Sure, Disney is no Netflix, but the market should want Disney to drive sustainable profit growth in streaming, and that’s what the company is doing. Iger also offered encouraging commentary on streaming subscribers, saying on the earnings call that churn due to the price hikes was actually not as bad as the company expected. Plus, he pointed out that combined subscribers across Disney+ and Hulu actually rose in the quarter, thanks to a 1.6 million gain for Hulu’s streaming-only offering. Johnston, the CFO, reiterated that Disney expects overall subscriber growth in its current fiscal year, explaining that continued efforts to crackdown on password sharing and the addition of some of its popular 2024 movies, such as “Moana 2,” onto Disney+ should lead to more signups in the coming quarters. Disney had an excellent year at the box office, and notable releases in 2025 that could keep the momentum going include “Captain America: Brave New World.” The password sharing crackdown fits into Disney’s broader strategy to improve its streaming technology to enhance subscriber growth, and Iger said investors should expect to see more of these advancements rolled out in the next 12 months. That includes improved recommendation algorithms and advertising tech. “In some ways, we’re just getting started” on tech improvements, he said. Disney’s experiences business — home to theme parks, cruises and consumer product sales — delivered better-than-expected revenues and profits, despite some hurricane-related disruptions to Florida operations. It’s important to see Disney’s profit-engine segment start the year on solid ground. The company’s new cruise ship, the Disney Treasure, had its maiden voyage in December. It’s off to a “spectacular start,” Johnston said. “We’ve done terrifically well” on selling out rooms and guest reviews are positive, he said. “As we’ve said before, our expectation is for this ship to be profitable the first quarter it’s in the water, and frankly, that’s very much our expectation from here going forward.” The CFO reiterated that Disney still expects operating income in its experiences segment to grow between 6% to 8% this year, and said the first-quarter performance only adds to his confidence in that outlook. He said Disney’s guidance has taken into consideration the opening of Comcast-owned Universal’s Epic Universe in Orlando, which is currently set for May. Looking into the summer, Disney’s own bookings are up for that period, Johnston said. He previously said the launch of rival attractions in Florida has been beneficial to Disney as it brings more visitors to the area. Comcast is the parent company of CNBC. Disney’s sports business — almost entirely consisting of ESPN, with small contributions from Star India —delivered better-than-expected revenue and profit. The biggest thing to watch is the upcoming launch of Flagship, a direct-to-consumer ESPN offering that will include more than what’s currently on the streaming service ESPN+, including betting and fantasy sports components. Iger said Flagship is tracking for a debut in the fall of this year, and he expressed optimism on its bundling possibilities with Disney+ and Hulu. “So, we’re bullish,” he said. Guidance Disney’s guidance for fiscal 2025 remained unchanged across key metrics, including EPS growth and experiences operating income, as previously mentioned. Cash provided by operations should be approximately $15 billion. Entertainment operating income is projected to be up double digits versus the prior year. Sports operating income is expected to grow roughly 13% year over year. The expansion of its cruise business is expected to accrue about $200 million in pre-opening expenses, including about $40 million in the current quarter. Share repurchases are projected to total $3 billion, including $800 million already completed in the first quarter. (Jim Cramer’s Charitable Trust is long DIS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. 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The Mickey Mouse and Minnie Mouse float passes by during the daily Festival of Fantasy Parade at the Magic Kingdom Park at Walt Disney World on May 31, 2024, in Orlando, Florida.
Gary Hershorn | Corbis News | Getty Images
The rejuvenated Disney kept rolling Wednesday, delivering first-quarter results that beat expectations alongside reasons for optimism in the year ahead.