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The record-setting box office performance of Inside Out 2 boosted Walt Disney’s third-quarter earnings and revived confidence in the Pixar animation studio, but the company warned that slowing consumer demand at its US theme parks could continue into next year.
Theme parks have been Disney’s growth engine since pandemic restrictions began to lift. In the 2023 fiscal year, the parks business unit contributed 70 per cent of Disney’s entire operating profit, providing a financial backstop as it lost money on its streaming efforts and as its traditional television networks declined.
But Disney warned on Wednesday that revenues and operating income from its parks unit were hit by a “moderation of consumer demand . . . that exceeded our previous expectations” towards the end of the June quarter.
Quarterly operating profit for Disney’s parks business unit fell 3 per cent compared with a year ago, to $2.2bn. Sales of consumer products dropped 5 per cent at the theme parks from the same period a year earlier. In response, the group said it planned to “aggressively manage” costs at the parks.
“The lower income consumer is feeling a bit of stress, the higher income consumer is travelling internationally a bit more,” Disney chief executive Bob Iger told investors on a call.
Iger described it as “a bit of a slowdown that is being more than offset by the entertainment business”.
Shares in Disney fell more than 2 per cent shortly after Wall Street’s opening bell on Wednesday.
Weakness in the parks was offset by strength in Disney’s film studio and streaming business. Iger praised the progress in the entertainment businesses, which had been suffering from a dearth of box office hits and losses at its streaming services.
“What we’ve been seeing with streaming is significant success driven largely by the success of our creativity” he said, listing television shows such as Shōgun and The Bear and movies including Deadpool and Wolverine and Inside Out 2.
Inside Out 2 has taken in more than $1.5bn at the global box office since its June 14 release, making it the highest-grossing animated film of all time. That performance, along with improvement at its Disney+ and Hulu streaming services, helped push operating income at Disney’s entertainment division to $1.2bn in the fiscal third quarter, up from $408mn a year earlier.
Together Disney’s three streaming services — Disney+, ESPN+ and Hulu — reported an operating profit of $47mn in the quarter, compared with a $512mn operating loss a year ago.
After a scarcity of breakout hits at the box office in 2022 and 2023 — including by Pixar and Marvel — Iger last year called for a focus on quality over quantity.
Marvel’s Deadpool & Wolverine, released on July 26, has been a breakout hit with nearly $900mn in box office revenues ahead of its third weekend.
Overall Disney made net income of $2.6bn on revenue of $23.2bn in the quarter.
Disney’s diluted earnings of $1.39 a share were well ahead of Wall Street expectations of $1.19 and up from $1.03 a year earlier. The company raised its full-year target for adjusted earnings per share.
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