Disney’s second-quarter revenue rose 7% to $25.2bn ($24.8bn expected). All divisions were in growth territory, with Entertainment growing at the fastest pace of 10%, largely reflecting higher subscription revenues.
Segment operating profit grew 4% to $4.6bn ($4.2bn expected). This was driven by top-line growth and partly offset by a decline in Sports profitability due to the unfavourable timing of contract renewals.
Free cash flow rose 1% to $4.9bn. Net debt was $41.7bn at period-end.
Third-quarter segment operating income is expected to be around $5.3bn (2025: $4.6bn). Full-year guidance now points to underlying earnings per share growth of 12% (previously double-digit growth).
The group expects to complete at least $8bn of share buybacks this year
The shares rose 3.0% in pre-market trading.
Our view
Disney beat market expectations in the second quarter as all divisions delivered top-line growth. Despite rising pressures in the wake of the Middle East conflict, news that demand at its theme parks remained resilient added to the uplift in sentiment towards tourism on the day.
Disney is a three-headed monster. Linear TV/Sports, Experiences, and Entertainment (streaming & movies) each have their own unique complexities. And it’s rare that the external factors that benefit each segment blow favourably at the same time.
In streaming, profitability has continued to improve, albeit from a low base. Disney’s edge is its pre-existing stable of intellectual property. It has a pre-loaded, pre-approved content cupboard that consumers are willing to pay higher fees to get and keep access to.
Getting a streaming service off the ground wasn’t cheap. But with most of the groundwork now in place, operations are being streamlined. New subscribers can be added at little additional cost, meaning most of the revenue from new subscriptions flows straight to the profit line.
While recent progress is commendable, we’re wary that the competitive landscape remains very tricky. Disney is still a long way behind industry leader Netflix when it comes to pricing power and subscriber loyalty.
Then there's the Experiences segment (theme parks, cruises, etc), which is still Disney’s largest profit driver. These are another way for Disney to juice the same intellectual property for cash over and over again.
We continue to think parks are a strong asset, with loyal fans likely to flock to the gates for years to come. Despite the Middle East conflict creating uncertainty around rising costs and consumer demand, Disney theme parks continue to perform well. But this part of the business is more likely to remain sensitive to consumer sentiment and see peaks and troughs.
At nearly $42bn, Disney is carrying a fair whack of debt. A lot of that's a hangover from the mega-merger with Fox. The group's improved and substantial free cash flow means we aren't overly concerned. There are also plans to return at least $8bn of excess cash through share buybacks this year, but as always, no shareholder returns are guaranteed.
Disney’s an excellent brand. The recent pullback in valuation comes at a time when underlying business performance is showing signs of improvement. As a result, the current valuation looks more appealing than it has done for some time. But streaming remains a highly competitive space, and there’s potential for macroeconomic headwinds to weigh on demand at its theme parks, so potential investors should expect some ups and downs.
Environmental, social and governance (ESG) risk
The media industry’s ESG risk is relatively low. Product governance is the key risk driver, alongside business ethics, labour relations and data privacy & security.
According to Sustainalytics, Disney’s management of ESG risk is strong.
Disney’s audit committee oversees cybersecurity and data security risks, and detection processes are periodically tested. But it’s not disclosed whether privacy risk assessments or external security audits are conducted regularly.
Disney key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.