Walt Disney Co. Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2022, compared with the quarter ended January 1, 2022. Amounts are in U.S. dollars; financial statement figures are in millions unless noted. The company cautions that quarterly results are seasonal and not necessarily indicative of full-year results.
Financial and operating performance
| Metric | Quarter ended Dec. 31, 2022 | Prior-year quarter | Change |
|---|---|---|---|
| Total revenue | $23.512 billion | $21.819 billion | +8% |
| Income from continuing operations before tax | $1.773 billion | $1.688 billion | +5% |
| Net income attributable to Disney | $1.279 billion | $1.104 billion | +16% |
| Diluted EPS from continuing operations | $0.70 | $0.63 | +11% |
| Segment operating income | $3.043 billion | $3.258 billion | -7% |
| Cash used in continuing operations | $974 million | $209 million | Outflow increased |
| Capital expenditures for parks, resorts and other property | $1.181 billion | $981 million | +20% |
Revenue growth reflected stronger parks and resorts, higher DTC subscription revenue and theatrical distribution. Higher service and product costs, particularly programming and production costs, contributed to total costs and expenses rising 10% to $21.519 billion. The effective tax rate declined to 23.2% from 28.9%, which management attributed to the impact of prior-year tax adjustments. Diluted EPS growth also reflected parks operating growth and lower investment losses, partly offset by weaker DMED results.
- Disney Media and Entertainment Distribution (DMED): Revenue was $14.776 billion, up 1%; segment operating loss was $10 million, versus $808 million of income. DTC revenue rose 13% to $5.307 billion, but its operating loss widened to $1.053 billion from $593 million as programming and production costs increased. Disney+ had 161.8 million paid subscribers, up 25% year over year; average monthly revenue per paid subscriber for global Disney+ fell 11% to $3.93. Linear Networks operating income declined 16% to $1.255 billion amid lower advertising and affiliate revenue. Content Sales/Licensing and Other reported a $212 million operating loss.
- Disney Parks, Experiences and Products (DPEP): Revenue rose 21% to $8.736 billion and segment operating income increased 25% to $3.053 billion. Higher attendance, guest spending, cruise passenger days and hotel occupancy supported results. Shanghai Disney Resort was closed for 33 days in the quarter due to COVID-19-related restrictions.
- Liquidity and debt: Cash and cash equivalents were $8.470 billion at December 31, down from $11.615 billion at October 1, 2022. Current assets were $26.912 billion versus current liabilities of $27.070 billion. Borrowings totaled $48.377 billion, including $3.249 billion current and $45.128 billion long-term. Disney reported $12.25 billion of unused committed bank facilities and said it met its interest-coverage covenant by a significant margin.
Material changes, outlook and unusual items
- CEO Robert A. Iger returned on November 20, 2022, with a two-year term. Management was developing a new organizational structure and operational changes; Disney said the changes could result in material restructuring and impairment charges and could change segment reporting.
- Management expected fiscal 2023 spending on produced and licensed content, including sports rights, to be in the low $30 billion range, compared with $30 billion in fiscal 2022. Fiscal 2023 capital expenditures were expected to be approximately $6 billion, up from $5 billion in fiscal 2022.
- Quarter results included $69 million of restructuring charges related to exiting businesses in Russia, a $70 million non-cash DraftKings investment loss and a $28 million gain on the sale of a business. Prior-year results included a $432 million DraftKings loss. TFCF and Hulu acquisition amortization was $579 million.
- Operating cash outflow increased, primarily due to collateral payments related to the hedging program, partly offset by higher parks operating cash flow. Investing outflow was $1.292 billion; financing outflow was $1.043 billion, including the $900 million purchase of MLB’s redeemable interest in BAMTech.
- Disney stated that it had not declared or paid a dividend for fiscal 2023 to date and could preserve liquidity by continuing not to pay dividends, raising financing, reducing capital spending or content investment, or reducing its workforce.
- Risks highlighted include economic weakness, competition for content and talent, changing audience and subscriber preferences, advertising-market conditions, regulation, labor disputes, international political and trade developments, weather and natural disasters, public-health events, and reliance on third parties. Management reported no probable material loss from the legal actions discussed in the filing; outcomes of litigation and tax matters remain uncertain.
Important facts for investors to verify
- Whether the planned organizational changes improve DMED and DTC profitability, and the amount and timing of any restructuring or impairment charges.
- Whether streaming subscriber growth translates into improved revenue per subscriber and narrower DTC losses as content and technology costs rise.
- Whether parks demand and guest spending can sustain growth while operating costs, inflation and capital spending increase.
- Whether operating cash flow recovers after the quarter’s hedging collateral outflows, and how cash needs, borrowings and upcoming commitments affect liquidity.
- The potential cost of Hulu’s January 2024 put/call redemption: NBCU’s interest was recorded at $8.7 billion, with a guaranteed floor based on a $27.5 billion Hulu equity value.