Business context and reporting period
The Walt Disney Company’s unaudited Form 10-Q covers fiscal first-quarter 2024, the quarter ended December 30, 2023. Disney reports three segments: Entertainment, Sports and Experiences. Comparisons below are with the quarter ended December 31, 2022; Disney cautions that seasonality makes quarterly results not necessarily indicative of full-year results.
Financial and operating performance
| Metric | Q1 FY2024 | Prior-year quarter |
|---|---|---|
| Revenue | $23.549 billion | $23.512 billion |
| Income before taxes | $2.871 billion | $1.773 billion |
| Net income attributable to Disney | $1.911 billion | $1.279 billion |
| Diluted EPS | $1.04 | $0.70 |
| Cash from operations | $2.185 billion | Cash used: $0.974 billion |
| Capital expenditures | $1.299 billion | $1.181 billion |
Revenue was essentially flat year over year, while Disney-attributable net income rose 49% and diluted EPS rose 49%. The filing attributes the EPS improvement primarily to higher operating income in Entertainment and Experiences, and to a lesser extent Sports. Consolidated operating margin is not stated as a headline metric in the filing.
Segment results
- Entertainment: Revenue fell 7% to $9.981 billion; segment operating income increased to $874 million from $345 million. Direct-to-Consumer (DTC) revenue rose 15% to $5.546 billion and its operating loss narrowed to $138 million from $984 million. Content Sales/Licensing and Other recorded a $224 million operating loss, chiefly reflecting weaker theatrical results. Linear Networks operating income declined 7% to $1.236 billion.
- Sports: Revenue rose 4% to $4.835 billion; operating loss narrowed to $103 million from $164 million. Star India’s operating loss increased to $315 million from $129 million.
- Experiences: Revenue rose 7% to $9.132 billion and operating income rose 8% to $3.105 billion, with growth driven by international parks and resorts. Domestic park attendance was flat year over year; international attendance increased 30%, partly because Shanghai Disney Resort operated throughout the quarter versus 58 days in the prior-year quarter.
Cash, debt and liquidity
Cash and cash equivalents were $7.192 billion at December 30, 2023, down from $14.182 billion at September 30, 2023. Total borrowings were $47.690 billion, comprising $6.087 billion current and $41.603 billion long term. Cash used in financing was $8.006 billion, including the $8.610 billion payment to NBCUniversal (NBCU) related to its Hulu interest. Disney had $12.250 billion of unused committed bank-facility capacity and said it met its interest-coverage covenant by a significant margin. Management stated that available cash, operating cash flow, capital-market access and borrowing capacity provide adequate resources for operating needs and obligations.
Material changes, outlook and management commentary
- Operating cash flow improved by $3.159 billion year over year, principally due to lower film and television production spending, timing of sports-rights payments and lower hedge-collateral payments. These benefits were partly offset by deferred federal and California tax payments made in the quarter.
- Disney expects fiscal 2024 produced and licensed content spending, including sports rights, of approximately $24 billion, versus $27 billion in fiscal 2023. It expects fiscal 2024 capital expenditures of approximately $6 billion, versus $5 billion in fiscal 2023, primarily reflecting Experiences investment, including cruise ships.
- No full-year earnings guidance is provided in the supplied filing text. Disney notes that results are exposed to seasonality, economic conditions, competition, consumer response to content and pricing, advertising demand, labor activity, regulation, currency movements, and other risks.
- In November 2023, NBCU exercised its right to require Disney to purchase its 33% Hulu interest. The December payment of $8.6 billion reflected Hulu’s guaranteed floor value; final fair value was not expected until later in calendar 2024. If the final value exceeds the floor, Disney must pay NBCU its share of the difference. Disney also agreed to pay NBCU 50% of future tax benefits associated with amortization of the purchase.
- After quarter-end, on February 7, 2024, the board declared a $0.45-per-share dividend payable July 25, 2024 and authorized repurchases of up to 400 million shares; Disney said it planned to target $3 billion of repurchases in fiscal 2024.
- The quarter included no restructuring or impairment charges. The prior-year quarter included $69 million of charges related to exiting Russia and $42 million of net other expense, including a DraftKings investment loss partially offset by a business-sale gain. Current-quarter results included $451 million of TFCF and Hulu acquisition amortization.
Risks, contingencies and unusual items
- A securities class action alleges misstatements or omissions concerning Disney+ costs and subscriber growth; related shareholder derivative suits are also pending. Disney intends to defend the cases, which are in early stages, and said potential losses cannot presently be reasonably estimated.
- Disney reported approximately $2.5 billion of gross unrecognized tax benefits; resolution of open tax matters could reduce that amount by $0.3 billion within the next twelve months.
- Disney disclosed that the Entertainment DTC reporting unit had approximately $45 billion of goodwill and fair value less than 10% above carrying value in its fiscal 2023 annual test. The filing identifies impairment sensitivity to discount rates and projected cash flows; additional impairment charges remain a risk if assumptions or conditions worsen.
- Guild strikes reduced scripted programming and production spending during the quarter and affected programming schedules and advertising impressions.
Important facts for investors to verify
- Hulu’s final valuation, any additional amount payable to NBCU, and the future tax-benefit sharing obligation.
- Whether DTC can sustain subscriber and average-revenue growth while reaching profitability; Disney+ Core had 111.3 million paid subscribers, down 1% sequentially but up 7% year over year.
- Progress against the $24 billion content-spending and $6 billion capital-expenditure expectations, and the impact of those plans on cash flow and debt.
- Performance at linear networks and theatrical content, including subscriber trends, advertising demand and the continuing effects of labor disruptions.
- Developments in the securities and derivative lawsuits, tax matters, and goodwill impairment assumptions—especially for Entertainment DTC.