“We are focused on the success of our transmission business and the return it generates for our shareholders in the future,” said Chief Executive Officer Bob Iger.
walt disney (DIS) – Get a free reportShares rose on Thursday after CEO Bob Iger revealed a series of changes at the media and entertainment group as it fends off an activist challenge from billionaire investor Nelson Peltz.
Iger detailed drastic changes within the group’s operating structure, including 7,000 layoffs, $5.5 billion in cost cuts and a new three-part organizational structure focused on Parks, Entertainment and ESPN. He also said that Disney would restore its regular dividend, which it suspended during the peak of the pandemic in 2020, by the end of the calendar year.
The moves followed a stronger-than-expected first-quarter earnings report that included reduced losses for its direct-to-consumer broadcast business that were offset by another increase in profit at its Parks division.
Disney said adjusted diluted earnings for the three months to December, the group’s fiscal first quarter, came in at 99 cents a share, well above Street’s forecast of 78 cents a share, as revenue rose 7 .7% to $23,510 million.
Stressing the need to focus on creativity, a stark contrast to the leadership of ousted CEO Bob Chapek, Iger said content spending would remain in the low $30 billion range this year but cut spending projections. of capital by about 10%, to $6 billion, maintaining guidance for segment operating income to grow in the “high single-digit percentage range” throughout the fiscal year.
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“We must also bring creativity back to the core of the business, increase accountability, improve results and ensure the quality of our content and experiences,” Iger told investors in a conference call Wednesday night. “Our company is driven by storytelling and creativity. And virtually every dollar we make, every transaction, every interaction with our consumers emanates from something creative.”
“Our new structure is intended to return greater authority to our creative leaders and hold them accountable for the financial performance of their content,” he added. “Our previous structure severed that link and it must be restored. Moving forward, our creative teams will determine what content we are creating, how it is distributed and monetized, and how it is marketed.”
Disney shares were up 6% in premarket trading and indicated an opening bell price of $118.50 per share, a move that would extend the stock’s year-to-date gain to about 33 ,2 %.
Still, Disney lost 2.4 million subscribers for the entire quarter, though ESPN+ subscribers increased 2% to 24.9 million and Hulu rose 2% to 48 million, following a 37.5% increase in the price of a Disney+ annual account established late last year. .
However, the Direct-to-Consumer division saw its operating loss narrow to around $1.05 billion from the $1.5 billion loss posted for the three months ending in September.
“We were, as a company, in a global arms race for subscribers,” Iger said. “And in our eagerness to go after subscribers, I think we’ve gotten too aggressive in terms of our promotion, and we’re going to look at that.”
Parks & Experiences revenue came in at $8.74 billion, beating Street’s estimate and rising more than 21% from last year as visitors returned to reopen resorts and cruise ships around the world, particularly in China. The division’s operating income was $3.1 billion, Disney said.
“We did better than we expected, but the feedback and the restructuring were relatively in line,” said Brandon Nispel, an analyst at KeyBanc Capital Markets, who raised his price target on Disney by $11 to $130 after last night’s gains. .
“We left with more questions than we started with, ultimately we wouldn’t be surprised to see stocks fade tomorrow as the broad questions remain unanswered,” he added. However, we are fairly confident that Disney’s Media’s future profitability will be higher than it has ever been in three years, and we feel Parks’ value is understated.”
One of the biggest questions could be whether Iger was able to prevent Peltz, who is lobbying for a board seat, from pressing his case for more changes at the company’s annual meeting in April.
Peltz has said he wants to work with Iger, who returned to the group on a temporary basis in November, on a CEO succession plan, improving operating margins in the group’s direct-to-consumer business, accelerating cost cuts and restoring the dividend from the company by 2025.
Iger’s dividend promise may assuage at least one of those concerns, but profitability may remain elusive in the newly created ‘entertainment’ division if ad spending continues to contract, consumers resist price hikes and the content spending remains unchanged.
There was also no mention of any plans to buy the remaining one-third stake in Hulu, the streaming service it shares with Comcast. (CMCSA) – Get a free reportbefore the January 2024 deadline, a move that Peltz has pushed for.
“We are focused on the success of our transmission business and the return it generates for our shareholders in the future,” Iger said.
