01—Abstract
Summary
Summary of the 10-Q filed May 11, 2022. Cited figures are marked; the original filing is the authoritative source.
The Walt Disney Company reported strong top-line growth for the second quarter and first half of fiscal year 2022, with total revenues increasing by 23%a and 29%, respectively, driven by a significant recovery in its Parks, Experiences and Products (DPEP) segment.
While DPEP revenue more than doubled year-over-year, the Media and Entertainment Distribution (DMED) segment also saw revenue growth, albeit at a slower pace. Net income attributable to Disney declined significantly in the quarter due to a large revenue reduction from an early contract termination and higher investment losses, but showed substantial growth for the six-month period. Diluted EPS from continuing operations also saw a decline for the quarter, but a strong increase for the first half of the year.
Despite the strong revenue rebound, particularly in parks, the company is facing increased costs in its media and entertainment segment, especially within Direct-to-Consumer (DTC) services, leading to a wider operating loss in that division. The company also noted ongoing impacts from COVID-19 on certain international operations and production. Investors should monitor the profitability of the DTC segment and the continued recovery and growth drivers within the Parks division.
02—Key points
Key Highlights
- Total revenues increased by 23% year-over-year for the quarter to $19.2 billion, and by 29% for the six months to $41.1 billion, primarily driven by the strong recovery in the Parks, Experiences and Products (DPEP) segment.
- DPEP segment revenues more than doubled, increasing by over 100% year-over-year for both the quarter ($6.7 billion) and the six months ($13.9 billion), reflecting the easing of COVID-19 restrictions and increased consumer demand.
- Disney Media and Entertainment Distribution (DMED) segment revenue grew by 9% for the quarter to $13.6 billion and by 12% for the six months to $28.2 billion, driven by increased DTC subscription and advertising revenue.
- Net income attributable to Disney decreased by 48% for the quarter to $470 million ($0.26 per diluted share) compared to $901 million ($0.50 per diluted share) in the prior year, impacted by a $1 billion revenue reduction for a Content License Early Termination and investment losses.
- For the six months, net income attributable to Disney increased by 71% to $1.57 billion ($0.89 per diluted share) compared to $918 million ($0.52 per diluted share) in the prior year, benefiting from strong DPEP performance and an increase in DMED results.
- Direct-to-Consumer (DTC) operating loss widened significantly in the quarter to $887 million from $290 million due to increased programming and production costs, as well as higher marketing expenses, particularly for Disney+ and Hulu.
- The company ended the quarter with $13.3 billion in cash, cash equivalents, and restricted cash, and had $12.25 billion in available committed credit facilities.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2022filed May 11, 2022Financial Statements
Q3 FY2022 against Q3 FY2021
| Line item | Q3 FY2022Q3 FY2021 | Change |
|---|---|---|
| Revenue | $21.50B$17.02B | +26.3% |
| SG&A Expenses | $4.10B$3.17B | +29.4% |
| Operating Expenses | $19.07B$15.67B | +21.7% |
| Operating Income | $3.57B$2.38B | +49.7% |
| Interest Expense | $380.00M$404.00M | −5.9% |
| Net Income | $1.41B$918.00M | +53.5% |
| EPS (Basic) | $0.77$0.50 | +54.0% |
| EPS (Diluted) | $0.77$0.50 | +54.0% |
| Shares Outstanding (Basic) | 1.82B1.82B | +0.3% |
| Shares Outstanding (Diluted) | 1.82B1.83B | −0.3% |
05—Questions
Frequently Asked Questions
What is the primary driver of the revenue growth in this quarter?
The primary driver of revenue growth was the strong recovery and rebound in the Disney Parks, Experiences and Products (DPEP) segment, which saw revenues more than double year-over-year. This was largely due to the easing of COVID-19 related restrictions, leading to increased attendance, higher per capita spending, and improved resort and vacation revenues.
Why did net income attributable to Disney and diluted EPS decrease in the current quarter despite revenue growth?
The decrease in net income and EPS for the quarter was primarily due to a significant $1.0 billion reduction in revenue recognized from an early termination of certain content license agreements. Additionally, the company incurred investment losses (specifically a $158 million loss on its DraftKings investment), compared to investment gains in the prior year, and faced a higher effective income tax rate.
What is the trend in the Direct-to-Consumer (DTC) segment, and how is it impacting profitability?
The DTC segment continues to grow its subscriber base and revenue, but its operating loss widened significantly in the quarter to $887 million. This was driven by increased programming and production costs for content on platforms like Disney+ and Hulu, higher technology and distribution expenses, and increased marketing spend. The company is investing heavily in content to support subscriber growth, which is currently outpacing revenue growth in this segment.
How is the company managing its debt and liquidity?
The company ended the quarter with a solid liquidity position, including $13.3 billion in cash, cash equivalents, and restricted cash. It also has access to substantial committed credit facilities totaling $12.25 billion. While debt levels remain significant, the company has a manageable debt maturity profile and has been actively managing its borrowings. The strong operating performance, particularly in the parks segment, contributes positively to cash flow.
06—Continue