Disney q1 Fy19 Earnings
Disney q1 Fy19 Earnings
Disney q1 Fy19 Earnings
February 5, 2019
BURBANK, Calif. – The Walt Disney Company today reported quarterly earnings for its first fiscal
quarter ended December 29, 2018. Diluted earnings per share (EPS) for the quarter decreased 36% to
$1.86 from $2.91 in the prior-year quarter. Excluding certain items affecting comparability(1), EPS for the
quarter decreased 3% to $1.84 from $1.89 in the prior-year quarter.
“After a solid first quarter, with diluted EPS of $1.86, we look forward to the transformative year
ahead, including the successful completion of our 21st Century Fox acquisition and the launch of our
Disney+ streaming service,” said Robert A. Iger, Chairman and Chief Executive Officer, The Walt Disney
Company. “Building a robust direct-to-consumer business is our top priority, and we continue to invest in
exceptional content and innovative technology to drive our success in this space.”
The following table summarizes the first quarter results for fiscal 2019 and 2018 (in millions, except
per share amounts):
Quarter Ended
December 29, December 30,
2018 2017 Change
Revenues $ 15,303 $ 15,351 — %
Segment operating income (1) $ 3,655 $ 3,986 (8) %
Net income (2) $ 2,788 $ 4,423 (37) %
(2)
Diluted EPS $ 1.86 $ 2.91 (36) %
EPS excluding certain items affecting comparability (1) $ 1.84 $ 1.89 (3) %
Cash provided by operations $ 2,099 $ 2,237 (6) %
Free cash flow (1) $ 904 $ 1,256 (28) %
(1)
EPS excluding certain items affecting comparability, segment operating income and free cash flow are non-GAAP
financial measures. See the discussion on pages 7 through 9. The most significant item affecting comparability was a net
benefit from new U.S. federal income tax legislation (Tax Act) that was recorded in the prior-year quarter. See page 5 for
further discussion.
(2)
Reflects amounts attributable to shareholders of The Walt Disney Company, i.e. after deduction of noncontrolling interests.
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SEGMENT RESULTS
The following table summarizes the first quarter segment operating results for fiscal 2019 and 2018
(in millions):
Quarter Ended
December 29, December 30,
2018 2017 Change
Revenues:
Media Networks $ 5,921 $ 5,555 7 %
Parks, Experiences & Consumer Products 6,824 6,527 5 %
Studio Entertainment 1,824 2,509 (27) %
Direct-to-Consumer & International 918 931 (1) %
Eliminations (184) (171) (8) %
$ 15,303 $ 15,351 — %
Segment operating income/(loss):
Media Networks $ 1,330 $ 1,243 7 %
Parks, Experiences & Consumer Products 2,152 1,954 10 %
Studio Entertainment 309 825 (63) %
Direct-to-Consumer & International (136) (42) >(100) %
Eliminations — 6 nm
$ 3,655 $ 3,986 (8) %
Media Networks
Media Networks revenues for the quarter increased 7% to $5.9 billion and segment operating income
increased 7% to $1.3 billion.
The following table provides further detail of the Media Networks results (in millions):
Quarter Ended
December 29, December 30,
2018 2017 Change
Supplemental revenue detail:
Cable Networks $ 3,986 $ 3,833 4 %
Broadcasting 1,935 1,722 12 %
$ 5,921 $ 5,555 7 %
Supplemental operating income detail:
Cable Networks $ 743 $ 793 (6) %
Broadcasting 408 291 40 %
Equity in the income of investees 179 159 13 %
$ 1,330 $ 1,243 7 %
Cable Networks
Cable Networks revenues for the quarter increased 4% to $4.0 billion and operating income
decreased 6% to $743 million. Lower operating income was due to a decrease at ESPN and Freeform,
partially offset by an increase at the Disney Channels.
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The decrease at ESPN was due to higher programming costs, partially offset by affiliate revenue
growth and an increase in advertising revenue. The increase in programming costs was due to contractual
rate increases for key sports programming and a shift in the mix of College Football Playoff (CFP) games.
Two semi-final games and one “host” game were aired in the current quarter, whereas three host games
aired in the prior-year quarter. Semi-final games generally have a higher cost than host games. Affiliate
revenue growth reflected contractual rate increases, partially offset by a decline in subscribers. Higher
advertising revenue was due to an increase in rates and impressions. The increase in impressions was due
to higher units delivered, partially offset by lower average viewership. Advertising revenue benefited from
the shift in mix of CFP games.
Lower operating income at Freeform was due to decreases in advertising revenue and program sales,
partially offset by lower programming costs. The decrease in advertising revenue was due to lower
average viewership, partially offset by higher rates.
Growth at the Disney Channels was due to higher income from program sales and an increase in
affiliate revenue. Affiliate revenue growth was due to contractual rate increases, partially offset by a
decline in subscribers. Program sales included a benefit from the adoption of a new revenue accounting
standard (ASC 606) (see page 4).
Broadcasting
Broadcasting revenues for the quarter increased 12% to $1.9 billion and operating income increased
40% to $408 million. The increase in operating income was due to affiliate revenue growth, increased
advertising revenue and higher program sales, partially offset by higher programming costs.
Growth in affiliate revenue was due to contractual rate increases and an impact from the adoption of
ASC 606 (see page 4). The increase in advertising revenue was due to higher network rates and an
increase in political advertising at the owned television stations, partially offset by lower network average
viewership. The increase in program sales was due to higher revenues from programs licensed to Hulu and
the sale of The Punisher in the current quarter. The programming cost increase was driven by higher
primetime costs, including the impact of The Conners and Dancing with the Stars in the current quarter.
Equity in the Income of Investees
Equity in the income of investees increased from $159 million in the prior-year quarter to $179
million in the current quarter due to higher income from A+E Television Networks driven by lower
marketing and programming costs.
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prices. At Hong Kong Disneyland Resort, the increase in operating income was driven by increased guest
spending and higher occupied room nights.
Lower income from licensing activities was driven by a decrease in revenue from products based on
Star Wars and Cars and higher third-party royalty expense, partially offset by an increase from minimum
guarantee shortfall recognition, higher revenues from products based on Spider-Man and an increase in
licensee settlements. Higher minimum guarantee shortfall recognition was due to an impact from the
adoption of ASC 606 (see below).
Studio Entertainment
Studio Entertainment revenues for the quarter decreased 27% to $1.8 billion and segment operating
income decreased 63% to $309 million. Lower operating income was due to a decrease in theatrical
distribution results, partially offset by growth in TV/SVOD distribution.
The decrease in theatrical distribution results was due to the strong performance of Star Wars: The
Last Jedi and Thor: Ragnarok in the prior-year quarter compared to Mary Poppins Returns and The
Nutcracker and the Four Realms in the current year. Other significant releases included Ralph Breaks the
Internet in the current quarter, while the prior-year quarter included Coco.
Growth in TV/SVOD distribution results was due to the performance of Incredibles 2 and Avengers:
Infinity War in the current quarter compared to Cars 3 and Guardians of the Galaxy Vol. 2 in the prior-
year quarter, more title availabilities, and to a lesser extent, an impact from the adoption of ASC 606 (see
below).
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OTHER FINANCIAL INFORMATION
Corporate and Unallocated Shared Expenses
Corporate and unallocated shared expenses increased $11 million to $161 million in the current
quarter primarily due to costs incurred in connection with the Twenty-First Century Fox (21CF)
acquisition, partially offset by lower compensation costs.
The increase in interest expense was due to financing costs related to the 21CF acquisition and higher
average interest rates, partially offset by lower average debt balances and higher capitalized interest.
The increase in interest income, investment income and other was due to unrealized investment gains
in the current quarter and the inclusion of a $25 million benefit related to pension and postretirement plan
costs, other than service cost. The Company adopted a new accounting standard in fiscal 2019 and now
presents the elements of pension and postretirement plan costs other than service cost in “Interest expense,
net.” A net benefit of $7 million in the prior-year quarter was reported in “Costs and expenses.” The
benefit in the current quarter was due to the expected return on plan assets, partially offset by interest
expense on plan liabilities and amortization of prior net actuarial losses.
Income Taxes
The effective income tax rate was as follows:
Quarter Ended
December 29, December 30,
2018 2017 Change
Effective income tax rate 18.8% (19.4)% (38.2) ppt
The increase in the effective income tax rate for the quarter reflected a $1.6 billion net benefit related
to the Tax Act that was recognized in the prior-year quarter. This net benefit drove a 41.6 percentage point
reduction in the prior-year effective tax rate. The $1.6 billion reflected a $1.9 billion benefit due to the
remeasurement of our net federal deferred tax liability to new statutory rates (Deferred Remeasurement),
partially offset by a one-time tax of $0.3 billion on certain accumulated foreign earnings (Deemed
Repatriation Tax). The current quarter benefited from a reduction in the Company’s U.S. statutory federal
income tax rate to 21.0% in fiscal 2019 from 24.5% in fiscal 2018. In addition, in the current quarter the
Company adjusted its estimate of the Deferred Remeasurement and Deemed Repatriation Tax impact and
recognized a $34 million net benefit.
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Noncontrolling Interests
Net (income) loss attributable to noncontrolling interests was as follows (in millions):
Quarter Ended
December 29, December 30,
2018 2017 Change
Net (income) loss attributable to noncontrolling interests $ 2 $ (50) nm
The change in net (income)/loss attributable to noncontrolling interests was due to lower results at
ESPN and Shanghai Disney Resort, and losses at our direct-to-consumer sports business, partially offset
by growth at Hong Kong Disneyland Resort. Lower results at ESPN were largely due to the benefit of the
Tax Act in the prior-year quarter.
Net income attributable to noncontrolling interests is determined on income after royalties and
management fees, financing costs and income taxes, as applicable.
Cash Flow
Cash provided by operations and free cash flow were as follows (in millions):
Quarter Ended
December 29, December 30,
2018 2017 Change
Cash provided by operations $ 2,099 $ 2,237 $ (138)
Investments in parks, resorts and other property (1,195) (981) (214)
Free cash flow (1) $ 904 $ 1,256 $ (352)
(1)
Free cash flow is not a financial measure defined by GAAP. See the discussion on pages 7 through 9.
Cash provided by operations decreased by $0.1 billion from $2.2 billion in the prior-year quarter to
$2.1 billion in the current quarter. The decrease was driven by lower segment operating results and higher
tax payments, partially offset by a decrease in film and television production spending.
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Capital Expenditures and Depreciation Expense
Investments in parks, resorts and other property were as follows (in millions):
Quarter Ended
December 29, December 30,
2018 2017
Media Networks
Cable Networks $ 32 $ 46
Broadcasting 33 36
Total Media Networks 65 82
Parks, Experiences & Consumer Products
Domestic 838 646
International 206 149
Total Parks, Experiences & Consumer Products 1,044 795
Studio Entertainment 20 22
Direct-to-Consumer & International 24 34
Corporate 42 48
Total investments in parks, resorts and other property $ 1,195 $ 981
Capital expenditures increased by $214 million to $1.2 billion driven by higher spending on new
attractions at our domestic theme parks and resorts.
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with GAAP. EPS excluding certain items affecting comparability, free cash flow and aggregate segment
operating income as we have calculated them may not be comparable to similarly titled measures reported
by other companies.
EPS excluding certain items affecting comparability – The Company uses EPS excluding certain items to
evaluate the performance of the Company’s operations exclusive of certain items affecting comparability
of results from period to period. The Company believes that information about EPS exclusive of these
items is useful to investors, particularly where the impact of the excluded items is significant in relation to
reported earnings, because the measure allows for comparability between periods of the operating
performance of the Company’s business and allows investors to evaluate the impact of these items
separately from the impact of the operations of the business.
The following table reconciles reported EPS to EPS excluding certain items affecting comparability
for the quarter.
Pre-Tax Tax After-Tax Change vs.
Income/ Benefit/ Income/ prior year
(in millions except EPS) Loss Expense (1) Loss (2) EPS (3) period
Quarter Ended December 29, 2018:
As reported $ 3,431 $ (645) $ 2,786 $ 1.86 (36)%
Exclude:
One-time net benefit from the Tax
Act — (34) (34) (0.02)
Excluding certain items affecting
comparability $ 3,431 $ (679) $ 2,752 $ 1.84 (3)%
Free cash flow – The Company uses free cash flow (cash provided by operations less investments in
parks, resorts and other property), among other measures, to evaluate the ability of its operations to
generate cash that is available for purposes other than capital expenditures. Management believes that
information about free cash flow provides investors with an important perspective on the cash available to
service debt obligations, make strategic acquisitions and investments and pay dividends or repurchase
shares.
Aggregate segment operating income – The Company evaluates the performance of its operating segments
based on segment operating income, and management uses aggregate segment operating income as a
measure of the performance of operating businesses separate from non-operating factors. The Company
believes that information about aggregate segment operating income assists investors by allowing them to
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evaluate changes in the operating results of the Company’s portfolio of businesses separate from non-
operational factors that affect net income, thus providing separate insight into both operations and the
other factors that affect reported results.
A reconciliation of income before income taxes to segment operating income is as follows (in
millions):
Quarter Ended % Change
December 29, December 30, Better/
(in millions) 2018 2017 (Worse)
Income before income taxes $ 3,431 $ 3,745 (8)%
Add/(subtract):
Corporate and unallocated shared expenses 161 150 (7)%
Restructuring and impairment charges — 15 nm
Other income — (53) nm
Interest expense, net 63 129 51 %
Segment Operating Income $ 3,655 $ 3,986 (8)%
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FORWARD-LOOKING STATEMENTS
Management believes certain statements in this earnings release may constitute “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements
are made on the basis of management’s views and assumptions regarding future events and business
performance as of the time the statements are made. Management does not undertake any obligation to
update these statements.
Actual results may differ materially from those expressed or implied. Such differences may result
from actions taken by the Company, including restructuring or strategic initiatives (including capital
investments or asset acquisitions or dispositions), as well as from developments beyond the Company’s
control, including:
• changes in domestic and global economic conditions, competitive conditions and consumer
preferences;
• adverse weather conditions or natural disasters;
• health concerns;
• international, political, or military developments; and
• technological developments.
Such developments may affect entertainment, travel and leisure businesses generally and may,
among other things, affect:
• the performance of the Company’s theatrical and home entertainment releases;
• the advertising market for broadcast and cable television programming;
• demand for our products and services;
• expenses of providing medical and pension benefits;
• income tax expense;
• performance of some or all company businesses either directly or through their impact on those
who distribute our products; and
• completion of the pending transaction with 21CF.
Additional factors are set forth in the Company’s Annual Report on Form 10-K for the year ended
September 29, 2018 under Item 1A, “Risk Factors,” and subsequent reports.
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THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in millions, except per share data)
Quarter Ended
December 29, December 30,
2018 2017
Revenues:
Services $ 12,866 $ 12,984
Products 2,437 2,367
Total revenues 15,303 15,351
Costs and expenses:
Cost of services (exclusive of depreciation and amortization) (7,564) (7,324)
Cost of products (exclusive of depreciation and amortization) (1,437) (1,405)
Selling, general, administrative and other (2,152) (2,087)
Depreciation and amortization (732) (742)
Total costs and expenses (11,885) (11,558)
Restructuring and impairment charges — (15)
Other income — 53
Interest expense, net (63) (129)
Equity in the income of investees 76 43
Income before income taxes 3,431 3,745
Income taxes (645) 728
Net income 2,786 4,473
Less: Net (income) loss attributable to noncontrolling interests 2 (50)
Net income attributable to The Walt Disney Company (Disney) $ 2,788 $ 4,423
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THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except per share data)
December 29, September 29,
2018 2018
ASSETS
Current assets
Cash and cash equivalents $ 4,455 $ 4,150
Receivables 10,123 9,334
Inventories 1,357 1,392
Television costs and advances 824 1,314
Other current assets 778 635
Total current assets 17,537 16,825
Film and television costs 8,177 7,888
Investments 2,970 2,899
Parks, resorts and other property
Attractions, buildings and equipment 55,385 55,238
Accumulated depreciation (31,069) (30,764)
24,316 24,474
Projects in progress 4,336 3,942
Land 1,145 1,124
29,797 29,540
Intangible assets, net 6,747 6,812
Goodwill 31,289 31,269
Other assets 3,424 3,365
Total assets $ 99,941 $ 98,598
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THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
Quarter Ended
December 29, December 30,
2018 2017
OPERATING ACTIVITIES
Net income $ 2,786 $ 4,473
Depreciation and amortization 732 742
Deferred income taxes 46 (1,726)
Equity in the income of investees (76) (43)
Cash distributions received from equity investees 170 170
Net change in film and television costs and advances 468 34
Equity-based compensation 92 94
Other 61 139
Changes in operating assets and liabilities:
Receivables (1,078) (1,378)
Inventories 32 65
Other assets 25 (29)
Accounts payable and other liabilities (1,289) (1,160)
Income taxes 130 856
Cash provided by operations 2,099 2,237
INVESTING ACTIVITIES
Investments in parks, resorts and other property (1,195) (981)
Other (141) (62)
Cash used in investing activities (1,336) (1,043)
FINANCING ACTIVITIES
Commercial paper borrowings/(payments), net (302) 1,140
Borrowings — 1,025
Reduction of borrowings — (1,330)
Repurchases of common stock — (1,313)
Proceeds from exercise of stock options 37 50
Other (146) (156)
Cash used in financing activities (411) (584)
Impact of exchange rates on cash, cash equivalents and restricted cash (44) 21
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Contacts:
Zenia Mucha
Corporate Communications
818-560-5300
Lowell Singer
Investor Relations
818-560-6601
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