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Investing.com - Walt Disney posted fiscal fourth-quarter profit which topped estimates, although relatively tepid returns at its entertainment unit and a warning around a protracted dispute with YouTube TV weighed on investor sentiment.
Shares of Disney were lower by more than 8% in early U.S. trading on Thursday.
Operating income at the entertainment division dropped by more than a third to $691 million, missing Bloomberg consensus expectations of $704.2 million, as Disney faced a tough comparison against box office smashes like "Deadpool & Wolverine" and "Inside Out 2" last year.
Television fees and advertising revenues have also taken a hit, reflecting changing viewer habits that have sparked an industry-wide move away from traditional cable and broadcast television options. Traditional TV segment earnings decreased by 21% to $391 million during the quarter ending in September.
In its place, Disney has been pushing to entice customers through improvements to its Disney+ streaming service and enhancements to its popular theme parks and cruises.
A bump in subscribers to Disney+ and the firm’s Hulu service to a total of 196 million, as well as a new distribution deal with broadband provider Charter Communications, helped boost streaming profits 39% to $352 million.
However, CFO Hugh Johnston flagged in a post-earnings call that Disney had created a "hedge" into its financial forecasts which assumed that a fight over distribution of Disney’s television channels on YouTube TV -- one of the biggest U.S. pay-TV providers and an arm of tech titan Alphabet -- will be prolonged.
Negotiations could be critical, with analysts cited by Reuters suggesting that a 14-day blackout of Disney’s networks on YouTube TV could cost the company around $60 million in revenue. Disney’s networks stopped appearing on YouTube TV on October 30.
Operating income at Disney’s experiences business, which folds in theme parks and cruise offerings, rose 13% to $1.88 billion. This was partially thanks to an uptick in passenger days on Disney cruises, the firm said.
CEO Bob Iger said Disney showed "great progress" in "leveraging the value of our creative and brand assets and continued to make meaningful progress in our direct-to-consumer businesses." Iger, whose contract placing him at the helm of the Disney is set to expire next year, has overseen a drive to slash expenses as well.
Against this backdrop, Disney reported group-wide quarterly adjusted earnings per share of $1.11, compared to Bloomberg consensus estimates of $1.07. Revenue for the period fell by 0.5% to $22.46 billion, versus expectations of $22.83 billion.
"[T]he quarter is relatively lackluster with a shortfall on sales and inline total operating income," analysts at Vital Knowledge said in a note.
Meanwhile, Disney laid out a forecast for double-digit percentage adjusted per-share earnings expansion in its fiscal 2026 and 2027.
The entertainment segment is also seen delivering double-digit operating income growth, weighted to the second half of the year.
Disney’s board declared an increased dividend of $1.50 per share, up from $1 a piece previously. The target for share repurchases was also doubled to $7 billion.