by Ray Keating
August 9, 2018

The Walt Disney Company reported its third quarter earnings on August 7. Based on the earnings report and related conference call, here are the 10 big takeaways.

  1. No matter the particular measure, earnings per share growth was strong. For example, earnings per share (excluding certain measures affecting comparability) increased by 18% in the latest quarter over the same quarter last year, and through the first nine months of the current fiscal year, EPS grew by 21% vs. the same nine months last year.
  2. Operating income growth was strong in Disney’s parks and resorts. In its earnings report, Disney noted:

“Higher operating income at our domestic parks and resorts was due to increased guest spending, partially offset by increased costs. Guest spending growth was due to increases in average ticket prices, food, beverage and merchandise spending and average daily hotel room rates. The increase in costs was due to labor and other cost inflation, partially offset by lower marketing costs. At our cruise line, growth was driven by higher passenger cruise days, which was primarily due to the Disney Fantasy dry-dock in the prior-year quarter.

“The increased operating income at our international parks and resorts was due to growth at Shanghai Disney Resort and Hong Kong Disneyland Resort. Higher operating income at Shanghai Disney Resort was due to lower costs and attendance growth, partially offset by decreased guest spending. The decrease in guest spending was driven by lower average ticket prices, partially offset by higher food and beverage spending. At Hong Kong Disneyland Resort, the increase in operating income was primarily due to higher occupied room nights, average ticket prices and attendance.”

  1. Studio entertainment segment operating income growth also was strong. Disney pointed out: “The increase in domestic theatrical distribution results was due to the success of Avengers: Infinity Warand Incredibles 2 in the current quarter compared to Guardians of the Galaxy Vol. 2and Cars 3 in the prior-year quarter, partially offset by higher pre-release marketing costs. Additionally, the current quarter included the continuing performance of Black Panther and the release of Solo: A Star Wars Story, whereas the prior-year quarter included the continuing performance of Beauty and the Beast and the release of Pirates of the Caribbean: Dead Men Tell No Tales.”
  2. Regarding the Fox assets acquisition, Robert A. Iger, chairman and CEO of The Walt Disney Company, said, “Having earned the overwhelming support of shareholders, we are more enthusiastic about the 21st Century Fox acquisition than ever, and confident in our ability to fully leverage these assets along with our own incredible brands, franchises and businesses to drive significant value across the entire company.”
  3. Launching the Disney streaming service – scheduled to be launched in late 2019 – stands as the company’s primary emphasis for the coming year, along with integrating the Fox assets.
  4. Disney’s streaming service will build up its new, original content, and not attempt to make a grand leap to the level where Netflix stands now. Iger made clear that was unnecessary given the company’s enormous IP portfolio right now. He also noted that the Disney streaming service will be priced lower than a Netflix – at least during the early going.
  5. Regarding the Disney streaming service, Iger highlighted that episodes of Star Wars: Clone Warsand a live-action Star Warswere moving ahead, as is a Monsters Inc.series.
  6. Thanks to passage of federal tax changes in late December of 2017, Disney’s effective income tax rate declined from 31.6% as of July 1, 2017, to 20.6% as of June 30, 2018.
  7. Disney has increased its capital investment: “Capital expenditures increased by $536 million to $3.3 billion due to higher spending on new attractions at our domestic parks and resorts and on technology at BAMTech, partially offset by lower spending at Hong Kong Disneyland Resort and Shanghai Disney Resort.”
  8. Iger likes that the company will be running three streaming services – the new Disney streaming, Hulu as majority owner, and ESPN Plus ($5 per month sports streaming service launched in April) – from the perspective of offering consumer choices.

For any other company, all of this activity would generate risks and questions. Disney is not immune from this, but one cannot think of another firm better positioned to launch a major streaming service, while at the same time, being the leading movie studio, as well as the top resort and theme park operator on the planet.

Ray Keating is the editor, publisher and economist for, and author of the Pastor Stephen Grant novels, with the two latest books being Reagan Country: A Pastor Stephen Grant Noveland Heroes and Villains: A Pastor Stephen Grant Short Story. He can be contacted at