01—Abstract
Summary
Summary of the 10-Q filed August 6, 2019. Cited figures are marked; the original filing is the authoritative source.
The Walt Disney Company's Q3 2019 10-Q filing reveals a significant surge in total revenues, driven primarily by the acquisition of 21st Century Fox (21CF) and the consolidation of Hulu.
While consolidated revenues saw a substantial increase of 33% year-over-year to $20.2 billiona, net income attributable to Disney declined by 40% to $1.76 billion, resulting in diluted EPS from continuing operations falling to $0.79 from $1.95 in the prior year's comparable quarter. This decline is attributed to substantial amortization of intangible assets and fair value step-ups from the 21CF acquisition, increased share count due to the acquisition, higher interest expenses, and restructuring charges related to the 21CF integration. The Direct-to-Consumer & International (DTCI) segment continues to experience significant losses, albeit with substantial revenue growth due to consolidation.
The Parks, Experiences and Products segment showed solid performance with a 7%b revenue increase, while Media Networks also saw a 21% revenue jump driven by 21CF's inclusion. Studio Entertainment experienced a 33% revenue increase, largely due to strong theatrical performance from 'Avengers: Endgame' and 'Toy Story 4'.
02—Key points
Key Highlights
- Total revenues for the quarter surged 33% to $20.2 billion, largely due to the acquisition of 21st Century Fox and consolidation of Hulu.
- Net income attributable to Disney decreased 40% to $1.76 billion, with diluted EPS from continuing operations falling to $0.79 from $1.95 in the prior year.
- The 21CF acquisition and Hulu consolidation resulted in $779 million in amortization and fair value step-up charges for the quarter.
- Direct-to-Consumer & International (DTCI) segment operating loss widened to $553 million, reflecting investments in ESPN+ and preparation for Disney+ launch.
- Parks, Experiences and Products segment revenue grew 7% to $6.57 billion, driven by strong performance in theme park admissions and merchandise licensing.
- Studio Entertainment revenues increased 33% to $3.84 billion, boosted by strong theatrical releases like 'Avengers: Endgame'.
- The company reported $207 million in restructuring and impairment charges related to the 21CF integration.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2019filed August 6, 2019Financial Statements
Q3 FY2019 against Q3 FY2018
| Line item | Q3 FY2019Q3 FY2018 | Change |
|---|---|---|
| Revenue | $20.26B$15.23B | +33.0% |
| SG&A Expenses | $3.37B$2.21B | +52.2% |
| Operating Expenses | $17.51B$11.30B | +54.9% |
| Operating Income | $3.95B$4.19B | −5.7% |
| Interest Expense | $472.00M$175.00M | +169.7% |
| Net Income | $1.76B$2.92B | −39.6% |
| EPS (Basic) | $0.98$1.96 | −50.0% |
| EPS (Diluted) | $0.97$1.95 | −50.3% |
| Shares Outstanding (Basic) | 1.80B1.49B | +20.9% |
| Shares Outstanding (Diluted) | 1.81B1.50B | +21.1% |
05—Questions
Frequently Asked Questions
What is the primary driver behind the significant revenue increase?
The substantial increase in total revenues is primarily driven by the acquisition of 21st Century Fox (21CF) and the subsequent consolidation of Hulu's operations. These significant additions to the company's portfolio bolstered overall revenue significantly.
Why did net income attributable to Disney decrease despite higher revenues?
Net income attributable to Disney decreased due to several factors related to the 21CF acquisition and Hulu consolidation. These include significant amortization of acquired intangible assets and fair value step-ups on film and television costs, an increase in the number of outstanding shares, higher interest expenses from increased debt, and restructuring costs associated with integrating 21CF. These expenses outweighed the revenue growth.
How is the Direct-to-Consumer & International (DTCI) segment performing, and what are the key factors?
The DTCI segment reported a wider operating loss of $553 million, despite substantial revenue growth driven by the consolidation of Hulu and 21CF. The increased losses are attributed to ongoing investments in streaming services like ESPN+ and the upcoming launch of Disney+, as well as higher programming and production costs associated with these initiatives.
What is the impact of the 21st Century Fox acquisition on the company's balance sheet and debt?
The 21CF acquisition significantly impacted the balance sheet. Goodwill increased substantially, reflecting the premium paid for the acquisition. Total debt also increased significantly due to debt assumed as part of the acquisition and new financing to fund the cash component. The company plans to use proceeds from the divestiture of certain 21CF assets (Regional Sports Networks) to pay down this indebtedness.
06—Continue