Despite gains at its Media Networks, The Walt Disney Co. reported lower earnings because of the impact of last year’s tax law changes and rising costs as it moves into the direct-to-consumer streaming business.
First-quarter net income dropped 37% to $2.788 billion, or $1.86 a share, from $4.423 billion or $2.91 a share a year ago. Excluding items affecting comparability including benefits from the new tax law, earnings per share were down 3%, the company said.
Revenues were flat at $15.3 billion.
“After a solid first quarter, with diluted EPS of $1.86, we look forward to the transformative year ahead, including the successful completion of our 21st Century Fox acquisition and the launch of our Disney+ streaming service,” said Disney CEO Bob Iger. “Building a robust direct-to-consumer business is our top priority, and we continue to invest in exceptional content and innovative technology to drive our success in this space.”
Operating income for Disney’s Media Networks division rose 7% to $1.3 billion as revenue rose 7% to $5.9 billion.
Operating income for Disney’s cable networks was down 6% to $743 million despite a 4% increase in revenues to $3.986 billion. The company said drops in income at ESPN and Freeform were partially offset by an increase at the Disney Channels.
ESPN had higher programming costs for college football that were greater than increases ad revenues as three post-season games moved into the quarter after airing in the fourth quarter a year ago. Affiliate revenue was up, despite a drop in subscribers.
Ad revenues were down at Freeform.
Operating income for Disney’s broadcast business rose 40% to $308 million as revenues rose 12% to $1.935 billion. Broadcast got a boost from political advertising and from licensing shows to Hulu. Primetime programming costs were up.
A+E Networks’ contribution to Disney rose to $179 million from $159 million, thanks to lower marketing and programming costs.
Disney’s new Direct-to-Consumer & International unit posted a $136 million loss, up from a $42 million loss a year ago. Revenues were down 1%. The unit made investments in ESPN+ and has assumed costs associated with the upcoming launch of Disney+.
Losses stemming from Hulu were lower.
Studio income dropped 63% to $309 million. Revenues fell 27% to $1.8 billion.
Theme parks income rose 10% to $2.2 billion as revenue rose 5% to 6.8 billion.
Disney incurred $161 million in costs in connection with its acquisition of 21st Century Fox.