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ESPN delivers for Disney Q2 earnings
MUMBAI: US media conglomerate Disney has reported quarterly earnings of $2.1 billion for its second fiscal quarter ended 2 April, an increase of $35 million over the prior-year quarter.
Diluted earnings per share (EPS) for the quarter increased by six per cent to $1.30 from $1.23 in the prior-year quarter. Excluding certain items affecting comparability, EPS for the quarter increased by 11 per cent to $1.36.
EPS for the six months ended 2 April 2016 increased by 22 per cent to $3.04 from $2.50 in the prior-year period. Excluding certain items affecting comparability, EPS for the six months increased by 20 per cent.
“We’re very pleased with our overall results in Q2, which marks our 11th consecutive quarter of double-digit growth in adjusted EPS. Our Studio’s unprecedented winning streak at the box office underscores the incredible appeal of our branded content, which we continue to leverage across the entire company to drive significant value. Looking forward, we are thrilled with the Studio’s slate and tremendously excited about the June 16th grand opening of the spectacular Shanghai Disney Resort,” said Disney chairman, CEO Robert A. Iger.
Media Networks: Revenues for the quarter were relatively flat at $5.8 billion and segment operating income increased by nine per cent to $2.3 billion.
Cable Networks: Revenues for the quarter decreased 2 per cent to $4.0 billion and operating income increased by 12 per cent to $2 billion due to an increase at ESPN, partially offset by lower equity income from A&E.
The increase at ESPN was due to the benefit of lower programming costs and higher affiliate revenues, partially offset by a decrease in advertising revenue. Results for the quarter benefited from the timing of the fiscal quarter end relative to when College Football Playoff (CFP) bowl games were played, which resulted in a decrease in programming costs and advertising revenue.
One CFP game was aired in the current quarter, whereas seven CFP games were aired in the second quarter of the prior year. Affiliate revenue growth was due to contractual rate increases, partially offset by a decline in subscribers. Lower ad revenue was due to lower ratings and rates, which were negatively impacted by the timing of CFP bowl games, partially offset by higher units sold.
Lower equity income from A&E was due to a decrease in advertising revenue, higher programming costs and a negative impact from the conversion of the H2 channel to Viceland as it is in a start-up phase.
Broadcasting: Revenues for the quarter increased by three per cent to $1.8 billion and operating income decreased by eight per cent to $278 million due to lower operating income from program sales and higher programming and marketing costs, partially offset by advertising and affiliate revenue growth. Lower operating income from program sales was due to a significant SVOD sale in the prior-year quarter and a higher cost mix of programs sold in the current quarter. The increase in programming costs was due to a higher average cost of new scripted programming and increased program cost write-offs. The increase in network ad revenue was due to higher rates, partially offset by lower ratings. Affiliate revenue growth was primarily due to contractual rate increases.
Studio Entertainment: Revenues for the quarter increased by 22 per cent to $2.1 billion and segment operating income increased by 27 per cent to $542 million. Higher operating income was due to an increase in theatrical distribution results and growth in TV/SVOD distribution, partially offset by the impact of foreign currency translation due to the strengthening of the US dollar against major currencies, decreased home entertainment results and higher film cost impairments.
The increase in theatrical distribution results was due to the strong performance of ‘Star Wars: The Force Awakens’ and ‘Zootopia’ in the current quarter compared to the continuing performance in the prior-year quarter of ‘Big Hero 6’ and ‘Into the Woods’, both of which were released domestically in the first quarter of the prior year. Higher TV/SVOD distribution results were driven by international growth.
The decrease in home entertainment results was primarily due to lower unit sales reflecting the performance of ‘Big Hero 6’, ‘Frozen’ and Marvel’s ‘Guardians of the Galaxy’ in the prior-year quarter compared to ‘The Good Dinosaur’, ‘Inside Out’ and Marvel’s ‘Ant-Man’ in the current quarter. The decrease from lower unit sales was partially offset by the benefit from ‘Star Wars’ classic titles that are distributed by a third party.
Parks and resorts: Revenues for the quarter increased 4 per cent to $3.9 billion and segment operating income increased by 10 per cent to $624 million. Operating income growth for the quarter was due to an increase at our domestic operations, partially offset by a decrease at our international operations. The current quarter reflected an offsetting impact from a shift in the timing of the New Year’s and Easter holidays relative to our fiscal periods.
The current quarter was adversely impacted by the absence of several days of the New Year’s holiday, which occurred in the second quarter of the prior year. This impact was essentially offset by the benefit of the two-week Easter holiday, which occurred in the second quarter of the current year compared to the third quarter of the prior year.
Higher operating income at the US operations was due to guest spending growth, partially offset by higher costs. The increase in guest spending was due to higher average ticket prices at the theme parks and cruise line, increased food, beverage and merchandise spending and higher average hotel room rates. Cost increases were due to labour and other cost inflation and higher depreciation associated with new attractions. Attendance at the US theme parks was relatively flat, as an increase at Disneyland Resort was offset by a modest decrease at Walt Disney World Resort.
Lower operating income at the international operations was due to higher pre-opening expenses at Shanghai Disney Resort, increased operating costs at Disneyland Paris and lower volume at Hong Kong Disneyland Resort, partially offset by higher guest spending at Disneyland Paris.
Consumer products and interactive media: Revenues for the quarter decreased 2 per cent to $1.2 billion and segment operating income decreased by eight per cent to $357 million. Lower operating income was primarily due to the impact of foreign currency translation due to the strengthening of the US dollar against major currencies, lower operating margins and comparable store sales at our retail business and lower results for Infinity. These decreases were partially offset by higher licensing revenues.
Increased licensing revenues were driven by higher revenue from Star Wars merchandise, partially offset by an adverse impact from the timing of minimum guarantee shortfall recognition and a decrease in revenue from merchandise based on ‘Frozen’.