Disney Gives Tepid Outlook as It Prepares for a New CEO

Walt Disney Co. shares slid after the world’s biggest entertainment company gave a tepid forecast for growth in the current period and the market awaits news on who will be its new leader.

Disney said it expects challenges attracting international tourists to its domestic parks in its fiscal second quarter and warned of ongoing increased costs for sports rights. The forecast overshadowed results for the quarter ending Dec. 27 that were boosted by record sales at its theme parks division.

The stock fell as much as 8% at the market open in New York, the biggest intraday decline since November. Disney’s share price has been under pressure as investors seek clarity on who will succeed succeed Bob Iger as chief executive officer when he steps down this year.

The bulk of earnings at the world’s largest entertainment company were delivered by the parks and cruises unit led by Josh D’Amaro, a leading candidate to replace Iger.

Still, Disney cautioned that it’s expecting only “modest” growth in the segment in the current quarter, due to a combination of factors including demand headwinds from international tourists at domestic parks, pre-launch costs for the Disney Adventure cruise ship and pre-opening costs for World of Frozen at Disneyland Paris.

“International visitors to US theme parks don’t stay in Disney hotels as much, which is reducing visibility into trends,” Chief Financial Officer Hugh Johnston said on a conference call with investors. Disney has shifted some of its marketing toward domestic audiences to maintain attendance rates, he said.

The forecast comes after a 6% increase in operating income at the experiences unit in the fiscal first quarter to $3.3 billion. Revenue jumped 6% to a record $10 billion, the company said in a statement Monday. Bookings at the company’s flagship Walt Disney World are up 5% this fiscal year, Johnston said, with growth weighted to the back half of the period.

Disney’s board is aligning on promoting D’Amaro to CEO and will vote on naming a new leader in the coming week, Bloomberg reported on Sunday. The Burbank, California-based entertainment giant has said that it will name a successor before the end of March.

Whoever takes the new CEO title will face challenges to maintain growth in the parks unit while boosting the streaming division to help overcome a shrinking traditional TV market.

Earnings per share for Disney overall in the period were $1.63, beating the average analyst estimate of $1.56. Sales rose 5% to $25.98 billion.

In the entertainment division, led by Dana Walden and Alan Bergman, profit fell by more than a third to $1.1 billion in the fiscal first quarter. It was held back by a decline in political advertising on Disney’s television channels and streaming services, as well as by marketing costs tied to the release of James Cameron’s Avatar: Fire and Ash. Disney had flagged in November that the entertainment unit would incur those one-time expenses.

Streaming revenue increased 11% in the quarter, boosted by subscription revenue for Disney+ and Hulu, while operating profit for the segment jumped 72% to $450 million.

For the current quarter, Disney forecast that operating income will be flat compared with the same period last year in the entertainment division. The company expects a profit of $500 million in its streaming TV business, however, an increase of $200 million from the same period last year.

Josh D’Amaro

Profit at the sports division, led by Jimmy Pitaro, fell 23% to $191 million, weighed down by higher rights fees for new WWE and college sports packages. Subscriber fees at the division that includes ESPN also fell. A dispute with YouTube last quarter over carrying channels such as ABC and ESPN adversely impacted operating income in the unit by about $110 million, Disney said. It expects operating income at the sports unit to decline $100 million in the current quarter due to higher sports rights expenses.

Disney and the National Football League closed the acquisition of many of the NFL’s media assets including the NFL Network and the RedZone Channel.

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