Cautious consumers are visiting the happiest place on Earth a little less this summer.
Disney (DIS) reported better-than-expected earnings Wednesday morning, but called out a late quarter slowdown in its theme park business. The company thinks the slowdown will persist for the next few quarters.
"We certainly see consumers behaving in a way — I wouldn't call it recessionary necessarily — they're watching their pennies a little bit more," Disney CFO Hugh Johnston told me on Yahoo Finance's Morning Brief.
Sales in its experiences segment — which houses the global theme park business — rose 2% year over year. Operating income fell 3%. Attendance was relatively unchanged year over year.
For the current quarter, Disney forecasts that operating profit for the segment will fall by a mid-single-digit percentage.
Investors and analysts had yawning worries about the outlook for Disney's theme parks business ahead of the report, following a warning on the company's last earning report. Since then, the consumer outlook has darkened as households deal with sticky inflation and still-elevated interest rates.
Shares are down more than 20% since Disney's results in May.
"Uncertainty with domestic demand trends at the Parks continue to weigh on sentiment despite early evidence that there’s a real turnaround at the studio (Inside Out 2 is the highest grossing film in Pixar history), the long-awaited inflection in DTC profitability is within arm’s reach (expected next quarter), and a new NBA rights deal seems imminent," Evercore ISI analyst Vijay Jayant said in an earnings preview note.
The theme park sluggishness somewhat overshadows a host of wins for Disney in the quarter and recent months.
Disney achieved profitability in its combined streaming business in the quarter for the first time, ahead of expectations. Johnston added that Disney making money in streaming should be expected by investors moving forward.
Meantime, Inside Out 2 has grossed more than $1.6 billion worldwide since its mid-June release date. Johnston says the movie's performance is not a one-off but rather a function of CEO Bob Iger doubling down on quality content instead of focusing on high volume.
The earnings rundown
Net sales: $23.2 billion, +4.03% from the prior year vs. $23.08 billion estimate
Entertainment revenue: $10.6 billion vs. $10.37 billion estimate
Direct to consumer revenue: $5.8 billion vs. $5.73 billion estimate
Sports revenue: $4.6 billion vs. $4.4 billion estimate
Experiences revenue: $8.4 billion vs. $8.63 billion estimate
Total operating income: $4.2 billion vs. $3.84 billion estimate
Adjusted EPS: $1.39, up 35% from the prior year vs. $1.19 estimate
What else caught our attention: Forward comments
Disney+ subscriber outlook: "modest" growth forecast for the current quarter
Full-year EPS growth: +30%
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