The Walt Disney Company Reports Second Quarter and Six Months Earnings for Fiscal 2022 – The Walt Disney Company

burbank, calif.-the walt disney company (nyse:dis) today reported earnings for its fiscal second quarter ended april 2, 2022.

• Quarterly and six-month revenues were up 23% and 29%, respectively, despite a $1 billion reduction in the amount due to a customer terminating content license agreements early. film and television delivered in previous years for the company to use the content primarily in our direct-to-consumer services.
• Diluted earnings per share (eps) from continuing operations for the quarter decreased to $0.26 from $0.50 in the prior year quarter. Excluding certain items(1), diluted earnings per share for the quarter increased to $1.08 from $0.79 in the prior year quarter.
• Earnings per share from continuing operations for the six months ended April 2, 2022 increased to $0.89 from $0.52 in the prior year period. Excluding certain items(1), EPS for the six months increased to $2.14 from $1.11 in the prior year period.

“Our strong results in the second quarter, including fantastic performance in our national parks and continued growth in our streaming services, with 7.9 million disney+ subscribers added in the quarter and total subscriptions across all of our offerings of DTCs exceeding 205 million, once again proved that we are in a league of our own,” said Bob Chapek, CEO of The Walt Disney Company. “As we look forward to Disney’s second century, I am confident we will continue to transform entertainment by combining extraordinary stories with innovative technology to create an even bigger, more connected and magical Disney universe for families and fans around the world.” p>

The following table summarizes the results for the second quarter of fiscal years 2022 and 2021:

Reading: Walt disney financial statements

segment results

The Company evaluates the performance of its operating segments based on segment operating income, and management uses total segment operating income as a measure of operating business performance separate from non-operating factors. The Company believes that information on total segment operating income assists investors by enabling them to assess changes in the operating results of the Company’s business portfolio independently of non-operating factors affecting net income, thereby providing insight separate from both operations and other factors that affect reported results.

The following are reconciliations of income from continuing operations before income taxes to total segment operating income and total income to total segment income (in millions):

Since the beginning of 2020, the world has been and continues to be affected by the new coronavirus (covid-19) and its variants. covid-19 and measures to prevent its spread have affected our segments in several ways, most significantly in the disney parks, experiences and products segment, where our theme parks and resorts were closed and cruise travel suspended and guided tours. These operations resumed at various points from May 2020, initially with reduced operational capabilities as a result of covid-19 restrictions. In fiscal years 2020 and 2021, we delayed or, in some cases, shortened or canceled theatrical releases. additionally, we experienced significant disruptions in content production and availability, including the delay of key live sports programming during fiscal year 2020 and fiscal year 2021.

In fiscal year 2022, our national parks and resorts generally operate without significant capacity restrictions related to COVID-19, such as those that were in place the previous year. Some of our international parks and resorts and cruise ship operations continue to be affected by COVID-19-related closures and capacity and travel restrictions. In the Disney Media and Entertainment Distribution segment, our film and television productions have generally resumed, although we have seen interruptions in production activities depending on local circumstances. In general, we have been able to release our films in theaters in the first half of fiscal year 2022, although certain markets continue to impose restrictions on the opening and capacity of theaters.

We have incurred, and will continue to incur, costs to comply with government regulations and the safety of our employees, guests and talent, of which certain costs are capitalized and will be amortized in future periods.

The following table summarizes second quarter segment revenue and segment operating income (loss) for fiscal years 2022 and 2021 (in millions):

disney media and entertainment distribution

Revenues and operating results for Disney’s Entertainment and Media Distribution segment are as follows (in millions):

(1) reflects fees received by linear networks from other dmed companies for the right to transmit our linear networks and related services.

linear networks

Linear network revenue for the quarter increased 5% to $7.1 billion and operating income decreased 1% to $2.8 billion. the following table provides more details of the linear network results (in millions):

national channels

Domestic channel revenue for the quarter increased 8% to $5.8 billion and operating income increased 3% to $2.3 billion. The increase in operating income was due to higher transmission operating income, partially offset by lower cable operating income.

The increase in radio broadcasting was due to higher results in own television stations and, to a lesser extent, in ABC. The increase at ABC was due to higher affiliate and advertising revenue, partially offset by higher programming and production costs and an increase in marketing costs. the higher affiliate revenue was due to an increase in contractual fees. The increase in advertising revenue was due to the Academy Awards opportunity and higher fees, partially offset by a decline in viewership and, to a lesser extent, fewer units shipped. the academy awards were issued in the current quarter compared to the third quarter of the previous year. Higher programming and production costs were due to Academy Awards timing, partially offset by lower average cost of other programming in the current quarter compared to the prior year quarter. the increase in own television stations was due to higher income from advertising and affiliates. The growth in advertising revenue was due to the timing of the Academy Awards and increased fees. the increase in affiliate revenue was due to higher contract fees.

The decrease in cable was due to higher programming and production costs, partially offset by growth in advertising and affiliate revenues. The increase in programming and production costs was due to higher NFL programming costs, contract fee increases for the college football, NBA and college basketball playoffs, and an increase in sports production costs. The higher NFL programming costs were due to airing three regular season games, one wild card playoff game and the Pro Bowl in the current quarter compared to one wild card playoff game in the prior year quarter. The increase in sports production costs was driven by the return of ESPN-hosted college events, which were canceled in the prior year quarter due to COVID-19. These increases were partially offset by lower costs for MLB programming due to the delayed start of MLB’s 2022 season. advertising revenue growth was due to higher impressions reflecting a higher average audience and, to a lesser extent, an increase in fees. higher affiliate revenue was driven by an increase in contract fees, partially offset by fewer subscribers.

international channels

International channel revenue for the quarter decreased 3% to $1.3 billion and operating income decreased 30% to $200 million. The decrease in operating income was due to lower affiliate revenue and an increase in programming and production costs, partially offset by growth in advertising revenue.

Lower affiliate revenue reflected the impact of channel closures and an unfavorable foreign exchange impact.

Higher programming and production costs were driven by higher cricket programming costs in the current quarter, partially offset by the impact of channel closures and a favorable foreign exchange impact. Higher costs for cricket programming were due to the broadcast of ten Indian Premier League (IPL) cricket matches in the current quarter compared to none in the prior year quarter and contractual fee increases for the board. control of cricket matches in india. ipl cricket matches generally occur in our fiscal second and third quarters. as a result of covid-19, there were no matches in the prior year quarter.

The increase in advertising revenue was due to a higher average audience driven by the broadcast of ipl cricket matches in the current quarter and higher fees, partially offset by an unfavorable currency impact.

direct to consumer

Direct-to-consumer revenue for the quarter increased 23% to $4.9 billion and operating loss increased $600 million to $900 million. The increase in operating loss was due to higher losses at Disney+ and ESPN+ and lower operating income at Hulu.

Lower results at Disney+ reflected higher programming and production, marketing and technology costs, partially offset by an increase in subscription revenue. higher subscription revenue was due to increased subscribers and higher retail prices. Cost and subscriber increases reflected growth in existing markets and, to a lesser extent, expansion into new markets.

Lower results on ESPN+ were due to higher sports programming costs and a decrease in revenue from Ultimate Fighting Championship (UFC) pay-per-view events, partially offset by an increase in subscription revenue due to subscriber growth. Lower UFC pay-per-view revenue was due to a decline in average purchases per event.

The decline at Hulu was due to higher programming and production, marketing and technology costs, partially offset by growth in subscription revenue and higher advertising revenue. The increase in programming and production costs was primarily due to higher subscriber-based fees for programming live television service due to the carriage of more networks, an increase in the number of subscribers and rate increases. Subscription revenue growth was due to an increase in subscribers and higher average rates, primarily due to increases in retail prices. the increase in advertising revenue was due to higher fees and impressions.

The following tables present additional information about our direct-to-consumer (DTC) product offerings from Disney+, ESPN+, and Hulu(1).

paying subscribers(1) from:

average monthly revenue per paying subscriber(1) for the quarter ended:

Average monthly revenue per paid subscriber for Disney+ domestic increased from $6.01 to $6.32 due to higher retail prices and a lower mix of wholesale subscribers, partially offset by a higher mix of subscribers to multi-product offerings.

Average monthly revenue per paid subscriber for Disney+ International (excluding Disney+ Hotstar) increased from $5.14 to $6.35 due to increases in retail prices.

disney+ hotstar average monthly revenue per paying subscriber increased from $0.49 to $0.76 due to launches in new territories with higher average prices and higher ad revenue per subscriber, partially offset by a combination of higher Registration of wholesale subscribers.

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Average monthly revenue per paid subscriber for ESPN+ increased from $4.55 to $4.73 primarily due to higher retail prices and, to a lesser extent, higher advertising revenue per subscriber, partially offset by a higher mix of multi-subscribers. product offers.

Average monthly revenue per paid subscriber for the Hulu Svod Only service increased from $12.08 to $12.77 due to higher retail prices and, to a lesser extent, higher advertising revenue per subscriber, partially offset by a higher mix of subscribers to offers of various products.

average monthly revenue per paid subscriber for the hulu live tv + svod service increased from $81.83 to $88.77 due to higher retail prices and higher advertising revenue per subscriber, partially offset by a higher product subscriber mix multiple offerings.

content sales/licenses and others

Content sales/licensing and other income for the quarter decreased 3% to $1.9 billion and segment operating income decreased to $16 million from $312 million. The decrease in operating income was due to lower TV/SVOD distribution results and, to a lesser extent, a decrease in home entertainment due to lower catalog title sales in the current quarter.

The decline in tv/svod distribution results was due to a decline in sales of episodic television content driven by higher sales of Modern Family and How I Met Your Motherin the quarter of the previous year.

Disney parks, experiences and products

revenue from disney parks, experiences and products for the quarter increased to $6.7 billion compared to $3.2 billion in the prior year quarter. segment operating results increased by $2.2 billion to revenue of $1.8 billion compared to a loss of $0.4 billion in the prior year quarter. Higher operating results for the quarter reflected increases in our domestic parks and experiences businesses and, to a lesser extent, our international parks and resorts and merchandise licensing businesses.

Operating income growth in our national parks and experiences was due to higher volumes and higher guest spending, partially offset by higher costs. the higher volumes were due to increases in attendance, occupied room nights and cruise departures. cruise ships operated at reduced capacities in the current quarter, while sailings were suspended in the prior year quarter. Guest spending growth was due to an increase in average ticket revenue per capita, higher average daily hotel room rates, and an increase in food, beverage and merchandise spending. The increase in average ticket revenue per capita was due to a mix of favorable attendance and the introduction of Genie+ and Lightning Lane in the first quarter of the current fiscal year. the higher costs were primarily due to volume growth, cost inflation and higher marketing expenses. our domestic parks and resorts were open for the entire current quarter, while disneyland resort was closed for the entire prior year quarter, and walt disney world resort operated at reduced capacity in the prior year quarter due to covid-19 restrictions .

improved results in our international parks and resorts were due to growth at disneyland paris, partially offset by declines at hong kong disneyland resort and shanghai disney resort. Higher operating results at Disneyland Paris were due to increases in attendance and room nights occupied, partially offset by higher operating costs due to volume growth and higher marketing costs. Declines at Hong Kong Disneyland Resort and Shanghai Disney Resort were due to lower attendance. Disneyland Paris was open for the entire current quarter and closed for the entire quarter of the previous year. Hong Kong Disneyland Resort was open for 3 days in the current quarter compared to 33 days in the prior year quarter. Shanghai Disney Resort was open for 78 days in the current quarter and was open for the entire quarter of the previous year. tokyo disney resort was open for the entire quarter in both the current and prior years.

merchandise licensing growth was driven by higher sales of merchandise based on mickey and minnie, spider-man, the star wars classic and disney princesses, partially offset by a lower recognition deficit of minimum guarantee.

The following table presents the detailed ancillary income and operating income (loss) for the Disney Parks, Experiences and Products segment:

other financial information

corporate shared and unallocated expenses

Corporate and unallocated shared expenses increased $71 million in the quarter, from $201 million to $272 million, driven by the timing of allocations to operating segments.

restructuring and impairment charges

in the current quarter, the company recorded charges for a total of $195 million due to the impairment of an intangible asset related to the disney channel in russia. During the prior year quarter, the Company booked charges totaling $414 million for asset damage and severance costs related to the planned closure of an animation studio and a substantial number of our Disney-branded retail stores. as well as compensation in our parks and tourist centers. companies.

Other income (expenses), net

In the current quarter, the company recorded a non-cash loss of $158 million to adjust its investment in draftkings, inc. (drafts) at fair value (lost draws). in the prior year quarter, the company posted a $305 million profit on draftkings.

interest expense, net

interest expense, net was as follows (in millions):

The decrease in interest expense was mainly due to lower average debt balances and higher capitalized interest.

The decrease in interest income, investment income and other was due to investment losses in the current quarter compared to investment gains in the prior year quarter. this decrease was partially offset by a favorable comparison of pension costs and post-retirement benefits, other than cost of service, which was a net benefit in the current quarter and an expense in the prior year quarter.

Share in the income of investees

the participation in the income of the investees was as follows (in millions):

income taxes

the effective income tax rate was as follows:

the effective income tax rate in the current quarter was higher than the us. uu. statutory rate primarily due to higher effective tax rates on foreign earnings, including the impact of tax regulations issued in the current quarter that limit our ability to use certain foreign tax credits. The effective tax rate on income in the prior year quarter was lower than the US rate. uu. statutory rate due to the favorable resolution of various tax issues and excessive tax benefits on employee stock-based awards, partially offset by higher effective tax rates on foreign earnings. Higher effective tax rates on foreign earnings in both the current and prior quarters reflected the impact of foreign losses and foreign tax credits for which we are unable to recognize a tax benefit.

minority interests

net income attributable to minority interests was as follows (in millions):

the decrease in net income from continuing operations attributable to minority interests was driven by higher losses in our dtc sports business.

Net income attributable to non-controlling interests is determined on the income after royalties and administration fees, financing costs and income taxes, as applicable.

cash flow

Cash provided by operations and free cash flow were as follows (in millions):

Cash provided by operations for fiscal 2022 increased by $100 million from $1.5 billion in the prior year period to $1.6 billion in the current period. The increase was due to higher operating income and lower severance payments, partially offset by higher spending on film and television content and a partial payment for early content license termination.

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Capital Expenses and Depreciation Expenses

Investments in parks, resorts and other properties were as follows (in millions):

Capital expenditures increased from $1.5 billion to $2.1 billion due to increased spending on Disney parks, experiences and products in the current period on cruise expansion and new guest offerings, reflecting in part the impact of the temporary suspension of certain capital projects in the previous year as a consequence of covid-19. the increase also reflected higher spending on corporate facilities.

depreciation expenses were as follows (in millions):

dtc product descriptions and key definitions

product offers

in usa USA, Disney+, ESPN+, and Hulu SVOD are only offered as a stand-alone service or as a bundle that includes all three services (the SVOD bundle). As of December 21, 2021, Hulu Live TV + SVOD includes Disney+ and ESPN+ (the new Hulu Live TV + SVOD offering), whereas previously, Hulu Live TV + SVOD was offered as a stand-alone service or with Disney+ and ESPN+. as optional additions (the old hulu live tv + svod offering). As of March 15, 2022, Hulu Svod Only is also offered with Disney+ as an optional add-on. Disney+ is available in more than 80 countries and territories outside of the US. uu. and Canada in India and other Southeast Asian countries, the service is branded Disney+ Hotstar. In certain Latin American countries, we offer Disney+ as well as Star+, a general entertainment SVOD service, which is available on its own or together with Disney+ (Combo+). Depending on the market, our services can be purchased on our websites, through third-party platforms/applications, or through wholesale agreements.

paying subscribers

Paid subscribers reflect subscribers for whom we recognized subscription revenue. subscribers cease to be paid subscribers as of the effective date of cancellation or as a result of a failed payment method. subscribers to the svod package are counted as paid subscribers for each service included in the svod package and subscribers to the hulu live tv + svod offers are counted as one paid subscriber for each of the hulu live tv + svod offers, disney+ and espn+. If a Hulu Svod Only subscriber chooses to add on Disney+, they are counted as a paid subscriber for each of the Hulu Svod Only and Disney+ offers. In Latin America, if a subscriber has the standalone Disney+ or Star+ or Combo+ service, they are counted as a paid Disney+ subscriber. subscribers include those who receive a service through wholesale agreements, including those for which we receive a fee for the distribution of the service to each subscriber of an existing content distribution level. when we aggregate the total number of paid subscribers on our dtc streaming services, we refer to them as paid subscriptions.

disney+ international (except disney+ hotstar)

disney+ international (except disney+ hotstar) includes disney+ service outside the us. uu. and Canada and the Star+ service in Latin America.

average monthly revenue per paying subscriber

Revenue per paying subscriber is calculated based on the average monthly number of paying subscribers for each month of the period. average monthly paid subscribers is calculated as the sum of the paid subscriber count at the beginning and end of the month, divided by two. Disney+ average monthly revenue per paid subscriber is calculated using a daily average of paid subscribers during the period. revenue includes subscription fees, advertising (excluding revenue earned from the sale of ad space to other company businesses), and additional premium and feature revenue, but excludes prime access and pay-per-view revenue. Average revenue per paid subscriber is net of discounts on the SVOD package or other offers that offer more than one service. revenue is allocated to each service based on the relative retail price of each service independently. As of December 2021, revenue from the new Hulu Live TV + SVOD offering is allocated to SVOD services based on the wholesale price of the SVOD package. In general, wholesale deals have a lower average monthly revenue per paid subscriber than subscribers we acquire directly or through third-party platforms.

non-gaap financial measures

This earnings release presents free cash flow, diluted earnings per share excluding certain items, and total segment operating income, all of which are important financial measures to the company, but are not GAAP-defined financial measures. .

These measures should be reviewed in conjunction with the most comparable GAAP financial measures and are not presented as alternative measures of cash provided from continuing operations, diluted EPS, or income from continuing operations before income taxes as determined in accordance with GAAP. free cash flow, diluted earnings per share excluding certain items and total segment operating income, as calculated by us, may not be comparable to similarly named measures reported by other companies. see more information on total segment operating income on page 2.

free cash flow

The company uses free cash flow (cash provided by continuing operations less investments in parks, resorts and other properties), among other measures, to assess the ability of its operations to generate cash that is available for purposes other than capital expenditures. Management believes that free cash flow information provides investors with important insight into cash available to service debt obligations, make strategic acquisitions and investments, and pay dividends or repurchase stock.

The following table presents a summary of the company’s consolidated cash flows (in millions):

The following table presents a reconciliation of the company’s consolidated cash provided by operations to free cash flow (in millions):

diluted eps excluding certain elements

The Company uses diluted EPS excluding (1) certain items that affect comparability of results from period to period and (2) amortization of TFCF and Hulu intangible assets, including purchase accounting increase adjustments. for published content, to facilitate the evaluation of the performance of the company’s operations without including these elements, and these adjustments reflect how senior management is evaluating the performance of the segment.

The Company believes that providing exclusive diluted earnings of certain items that affect comparability is helpful to investors, particularly when the impact of the excluded items is significant relative to reported earnings and because the measure allows for comparability between periods of the operating performance of the company’s business and allows investors to assess the impact of these items separately.

The Company also believes that providing exclusive diluted earnings from the amortization of tfcf and hulu’s intangible assets associated with the acquisition in 2019 is helpful to investors because the acquisition of tfcf and hulu was substantially larger than the company’s historical acquisitions. company with a significantly higher impact acquisition accounting.

The following table reconciles reported diluted earnings per share from continuing operations to diluted earnings per share, excluding certain items for the second quarter:

The following table reconciles reported diluted earnings per share from continuing operations to diluted earnings per share, excluding certain items for the current year and prior year six-month periods:

conference call information

In conjunction with this announcement, the Walt Disney Company will hold a conference call today, May 11, 2022, at 4:30 p.m. m. ET/1:30 p.m. To access the webcast, go to www.disney.com/investors. the discussion will be archived.

forward-looking statements

Certain statements and information in this earnings release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about future performance and growth; and the future impact of COVID-19 on our business and other statements that are not historical in nature. These statements are made based on management’s views and assumptions regarding future events and business performance at the time the statements are made. Management assumes no obligation to update these statements.

Actual results may differ materially from those expressed or implied. such differences may be the result of actions taken by the company, including restructuring or strategic initiatives (including capital investments, acquisitions or disposals of assets, new or expanded lines of business, or the cessation of certain operations) or other business decisions, as well as of developments beyond the company. control, including:

• more changes in national and global economic conditions;

• changes or pressures from competitive conditions and consumer preferences;

• health problems and their impact on our business and productions;

• international, regulatory, legal, political or military developments;

• technological developments;

• labor markets and activities;

• adverse weather conditions or natural disasters; and

• content availability;

Each of these risks includes, and is amplified by, the current and future impacts of COVID-19 and related mitigation efforts.

such developments may further affect entertainment, travel and leisure businesses in general and may, among other things, affect (or further affect, as appropriate):

• our operations, business plans or profitability;

• demand for our products and services;

• the performance of the company’s content;

• the programming advertising market;

• income tax expense; and

• performance of some or all of the company’s business, either directly or through its impact on those who distribute our products.

Additional factors are set forth in the company’s annual report on Form 10-k for the year ended October 2, 2021 under the headings “risk factors,” “management’s discussion and analysis,” and “business,” and subsequent filings with the Securities and Exchange Commission, including, but not limited to, quarterly reports on Form 10-q.

The terms “company,” “we,” “us,” and “our” are used in this report to refer collectively to the parent company and subsidiaries through which our various businesses are conducted.

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