In Disney’s seemingly never-ending game of corporate Whac-a-Mole, a new trouble spot has arisen: Americans — battered by years of high inflation — have less money to spend on amusement, imperiling growth at Disney theme parks.
On Wednesday, Disney reported weaker-than-expected theme park results for the three months that ended on June 29. Revenue increased 2 percent from a year earlier, to $8.4 billion, while operating profit declined 3 percent, to $2.2 billion. Disney blamed a “moderation of consumer demand” that “exceeded our previous expectations,” along with higher costs. Disney said softening demand “could impact the next few quarters.”
Disney added that it was “aggressively managing our cost base.”
Theme parks have taken on much greater financial importance at Disney over the past decade. They have been the A.T.M.s that have paid for Disney’s costly expansion into streaming and picked up the slack for the company’s atrophying cable television business. Last year, Disney Experiences, a division that includes theme parks and cruise ships, contributed 70 percent of the Walt Disney Company’s operating profit, up from about 30 percent a decade ago.
Robert A. Iger, Disney’s chief executive, has called theme parks and cruise ships “a key growth engine” for the company. Last year, Disney said it would spend roughly $60 billion over the next decade to expand its parks and to continue building Disney Cruise Line, double the amount of the previous decade. Josh D’Amaro, chairman of Disney Experiences, is expected to unveil an array of specific expansion projects on Saturday at a fan convention in Anaheim, Calif.
But there are reasons to worry that the U.S. economy could be headed toward a recession. In addition, the global postpandemic surge in travel is largely over. Citing a “normalization” of demand, Comcast said last month that quarterly revenue at its Universal theme parks had fallen 11 percent, while pretax earnings plunged 24 percent.
Mr. Iger has been trying to move Disney beyond a tumultuous period when activist investors sought to alter the company’s direction. One activist, Nelson Peltz, mounted a proxy contest for board seats this year and harshly criticized Disney’s streaming strategy, succession planning and lagging stock price. Disney fended off the attacks, but its share price has fallen 27 percent since early April.
“If Disney doesn’t manage to reverse this negative trend, the specter of an activist rebellion will rear its head again,” Paul Verna, a media analyst at Emarketer, a research firm, said in an email last week.
The remainder of Disney’s quarter was solid. Companywide revenue increased 4 percent from a year earlier, to $23.2 billion, slightly above Wall Street expectations. Adjusted per-share income increased 35 percent, beating expectations. Disney lifted its full-year target for adjusted earnings growth to 30 percent. Disney previously told investors to expect 25 percent.
Movies provided some of the quarterly upside. “Inside Out 2,” released in June, took in $1.6 billion worldwide and reversed a slump at Disney-owned Pixar. “Kingdom of the Planet of the Apes,” from Disney’s 20th Century Studios, was a hit in May, collecting nearly $400 million. (After the quarter ended, Disney released “Deadpool & Wolverine” to record-breaking ticket sales.)
ESPN delivered a 4 percent increase in operating income, to $1.1 billion, with most of the growth coming from overseas. Ad sales for ESPN’s domestic cable channels rose 17 percent, but higher costs, among other factors, limited the rise in domestic operating income to 1 percent.
Disney also benefited from improved streaming results. Together, Disney’s three services (Disney+, Hulu and ESPN+) generated $47 million in operating income, compared with a loss of $512 million a year earlier. It was the first time that Disney’s direct-to-consumer division as a whole turned a profit. Disney previously said it would not achieve that goal until later this year.
Disney+ ended the quarter with 153.8 million subscribers worldwide, an increase of 200,000 from the previous quarter.
As it has strained to make streaming profitable, Disney has introduced a series of price increases, and more are on the way.
Starting on Oct. 17, the ad-free version of Disney+ will cost $16 a month, up from $14, the company said on Tuesday. (An ad-supported version of Disney+ will cost $10, also an increase of $2.) Next month, Disney+ will introduce “continuous playlists,” or constantly running channels that mimic the traditional television experience, devoted to programming from ABC News, preschool shows and other topics.
Disney also announced price increases for Hulu subscriptions.