DIS Walt Disney Co

By Micah Maidenberg 

Walt Disney Co.'s expenses rose faster than revenue in its latest quarter, as the entertainment giant reported higher costs for labor and technology and those accumulated as part of efforts to acquire 21st Century Fox Inc.'s entertainment assets.

The earnings report is the first since Comcast Corp. dropped out of its pursuit of the 21st Century Fox assets last month, clearing the way for Disney to move forward with its proposed $71 billion acquisition of important parts of Rupert Murdoch's media holdings.

In late July, shareholders of Disney and 21st Century Fox approved the deal, which still needs regulatory sign-off in several countries. The U.S. Justice Department approved the transaction in June.

"Having earned the overwhelming support of shareholders, we are more enthusiastic about the 21st Century Fox acquisition than ever," Disney Chief Executive Robert Iger said in a written statement.

Disney said its third-quarter profit rose 23% to $2.92 billion, or $1.95 a share, from $2.37 billion, or $1.51 a share, a year earlier. The company's adjusted profit of $1.87 a share was less than the $1.95 a share that analysts polled by FactSet predicted.

Revenue increased 7% to $15.22 billion, less than the $15.35 billion expected by analysts.

Shares in Disney were off 2.2% at $114 in after-hours trading.

Revenue increased across Disney's three largest business segments, but the company also said total expenses rose 8% to $11.3 billion.

Parks and resorts revenue rose 6% to $5.19 billion, and operating income increased 15% to $1.3 billion. Stronger guest spending as a result of higher prices helped offset an increase in wages for employees at the company's domestic theme parks and other costs.

The company also rode the popularity of movies released in the quarter -- including "Avengers: Infinity War" and "Incredibles 2" -- with sales for the segment rising 20% to $2.89 billion. Disney also reported impairments to animated films "that will not be released," as well as lower domestic home-entertainment results.

Disney's media-networks business, its largest, reported revenue of $6.2 billion for the quarter, up 5% from a year earlier. The segment includes Disney's cable-television holdings, including ESPN, a significant profit center for the company.

But ESPN's business has been challenged by consumers who have switched to cheaper ,so-called skinny cable bundles, or canceled their cable packages outright in favor of streaming services from Netflix Inc. and Amazon.com Inc. Disney said operating income from ESPN rose in the quarter from the prior year.

In April, Disney launched ESPN+, a $4.99-a-month streaming service meant to draw in consumers who want to watch sports but don't want to pay for a full cable package.

The company reported that costs associated with ESPN+ helped to drive an operating loss at BAMTech, a direct-to-consumer streaming technology.

Revenue at Disney's broadcasting business, also part of the media-networks segment, increased 11% to $2 billion for the quarter. Operating income rose 43% to $361 million.

Disney's planned takeover of the 21st Century Fox assets might help it compete for customers seeking streaming options, because it would allow Disney to double its ownership stake in Hulu to 60%.

The company said corporate and unallocated expenses for the period almost doubled compared with last year, to $196 million. That increase stemmed partly from its agreement to buy the 21st Century Fox assets, as well as higher compensation costs, Disney said.

Meanwhile, on Tuesday, 21st Century Fox made a formal offer to acquire the British pay-television operator Sky PLC. Fox, which already owns a 39% stake in Sky, is trying to beat out Comcast to acquire the rest of the company.

21st Century Fox and News Corp, parent company of The Wall Street Journal, share common ownership.

(END) Dow Jones Newswires

August 07, 2018 17:43 ET (21:43 GMT)

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