The Walt Disney Company (NYSE: DIS) today reported earnings for its fourth quarter and full year ended September 30, 2023.

Financial Results for the Quarter and Full Year:

• Revenues for the quarter and year grew 5% and 7% compared to the prior-year quarter and prior year, respectively.
• Diluted earnings per share (EPS) from continuing operations for the quarter increased to $0.14 from $0.09 in the prior-year quarter and for the year, decreased to $1.29 from $1.75 in the prior year.
• Excluding certain items⁽¹⁾, diluted EPS for the quarter increased to $0.82 from $0.30 in the prior-year quarter and for the year, increased to $3.76 from $3.53 in the prior year.

Key Points:

• Disney+ added nearly 7 million core subscribers in the fourth quarter. Key streaming content in the quarter included theatrical titles Elemental, Little Mermaid and Guardians of the Galaxy Vol. 3., original series Ahsoka and the Korean original series Moving.
• We continue to expect that our combined streaming businesses will reach profitability in Q4 of FY24, although progress may not look linear from quarter to quarter.
• Domestic ESPN revenue and operating income grew year over year in both fiscal year 2022 and fiscal year 2023, demonstrating the value of sports and the power of the ESPN brand.
• Experiences operating income increased by over 30% versus the prior-year quarter, with year over year growth across all international sites, Disney Cruise Line, Disney Vacation Club and Disneyland Resort. At Walt Disney World, we continue to manage against wage inflation and challenging comparisons to the prior year from the 50^th anniversary celebration.
• We continue to aggressively manage our cost base, and have increased our annualized efficiency target to $7.5 billion, versus $5.5 billion previously.
• We expect to grow free cash flow in fiscal 2024 significantly versus fiscal 2023, approaching levels last seen pre-pandemic. This continued robust free cash flow growth, alongside our strong balance sheet, will position us well to address our investment and shareholder goals for the year and going forward.

“Our results this quarter reflect the significant progress we’ve made over the past year,” said Robert A. Iger, Chief Executive Officer, The Walt Disney Company. “While we still have work to do, these efforts have allowed us to move beyond this period of fixing and begin building our businesses again. We have a solid foundation of creative excellence and innovation built over the past century, which has only been reinforced by the important restructuring and cost efficiency work we’ve done this year, and we’re on track to achieve roughly $7.5 billion in cost reductions. Combined with our portfolio of valuable businesses, brands and assets – and the way we manage them together – Disney has a strong hand that differentiates us from others in our industry.

“As we look forward, there are four key building opportunities that will be central to our success: achieving significant and sustained profitability in our streaming business, building ESPN into the preeminent digital sports platform, improving the output and economics of our film studios, and turbocharging growth in our parks and experiences business. We have already made considerable advancements in these four areas and will continue to move forward with a sense of purpose and urgency, and I’m bullish about the opportunities we have before us to create lasting growth and increase shareholder value.”

The following table summarizes fourth quarter and full year results for fiscal 2023 and 2022:

The following table summarizes fourth quarter and full year segment revenue and operating income (loss) for fiscal 2023 and 2022:

DISCUSSION OF FOURTH QUARTER SEGMENT RESULTS

Entertainment

Revenue and operating results for the Entertainment segment are as follows:

Linear Networks

Linear Networks revenues and operating income are as follows:

Domestic

The decrease in domestic operating income was due to:

• A decrease in advertising revenue primarily at the ABC Network and the owned TV stations
  • Lower network advertising revenue was attributable to fewer impressions from lower average viewership
  • The decrease at the owned TV stations was due to lower political advertising revenue
• Lower affiliate revenue reflecting a decline in subscribers, partially offset by higher contractual rates
• Lower marketing costs driven by fewer season premieres
• A decrease in programming and production costs due to lower costs at the ABC Network in part driven by the impact of guild strikes

Equity in the Income of Investees

Income from equity investees increased due to improved results from A+E Television Networks (A+E) driven by lower marketing costs and higher income from program sales, partially offset by a decrease in affiliate revenue.

Direct-to-Consumer

Direct-to-Consumer (Disney+, Disney+ Hotstar and Hulu) revenues and operating loss are as follows:

The decrease in operating loss was due to:

• Higher subscription revenue attributable to:
  • Increases in retail pricing at Disney+ Core and Hulu
  • Subscriber growth at Disney+ Core and Hulu
• Lower marketing, technology and distribution costs
• An increase in programming and production costs due to higher subscriber-based fees for programming the Hulu Live TV service attributable to more subscribers and rate increases

Fourth Quarter of Fiscal 2023 Comparison to Third Quarter of Fiscal 2023

The following tables and related discussion present additional information about our Disney+ and Hulu direct-to-consumer (DTC) product offerings⁽¹⁾ on a sequential quarter basis.

Paid subscribers⁽¹⁾ at:

Average Monthly Revenue Per Paid Subscriber⁽¹⁾ for the quarter ended:

Domestic Disney+ average monthly revenue per paid subscriber increased from $7.31 to $7.50 due to higher advertising revenue.

International Disney+ (excluding Disney+ Hotstar) average monthly revenue per paid subscriber increased from $6.01 to $6.10 due to an increase in average retail pricing, partially offset by a higher mix of subscribers to promotional offerings.

Disney+ Hotstar average monthly revenue per paid subscriber increased from $0.59 to $0.70 due to a lower mix of wholesale subscribers and higher advertising revenue.

Hulu SVOD Only average monthly revenue per paid subscriber decreased from $12.39 to $12.11 primarily due to lower advertising revenue and a higher mix of subscribers to multi-product offerings.

Hulu Live TV + SVOD average monthly revenue per paid subscriber decreased from $91.80 to $90.08 primarily due to lower advertising revenue.

Content Sales/Licensing and Other

Content Sales/Licensing and Other revenues and operating loss are as follows:

The increase in operating loss was due to:

• The performance of The Haunted Mansion in the current quarter compared to Thor: Love and Thunder in the prior-year quarter, partially offset by lower theatrical marketing costs for future releases
• An increase in home entertainment distribution results driven by higher unit sales

Sports

Sports revenues and operating income are as follows:

Domestic ESPN

Higher domestic ESPN operating results were primarily due to:

• A decrease in programming and production costs reflecting lower college football costs attributable to the non-renewal of certain contracts
• Growth in ESPN+ subscription revenue resulting from an increase in retail pricing and subscriber growth
• Lower marketing costs
• A modest increase in advertising revenue
• A decrease in affiliate revenue due to fewer subscribers and the temporary suspension of carriage with an affiliate, partially offset by higher contractual rates

Fourth Quarter of Fiscal 2023 Comparison to Third Quarter of Fiscal 2023

The following table presents additional information about ESPN+ on a sequential quarter basis.

Experiences

Experiences revenues and operating income are as follows:

Domestic Parks and Experiences

The increase in operating income at our domestic parks and experiences was due to:

• Growth at Disney Cruise Line resulting from increases in passenger cruise days and average ticket prices
• An increase at Disney Vacation Club attributable to sales of The Villas at Disneyland Hotel in the current quarter
• Lower results at our domestic parks and resorts, which reflected:
  • A decrease at Walt Disney World Resort resulting from:
    • Higher costs attributable to accelerated depreciation related to the closure of Star Wars: Galactic Starcruiser and inflation
    • To a lesser extent, lower guest spending driven by a decrease in average daily hotel room rates
  • Growth at Disneyland Resort due to:
    • Higher attendance
    • Increased guest spending primarily due to higher average ticket prices
    • Higher costs due to inflation

International Parks and Experiences

Higher international parks and experiences’ operating results were due to:

• An increase in operating results at Shanghai Disney Resort due to:
  • Guest spending growth attributable to an increase in average ticket prices
  • Higher volumes due to an increase in attendance
• Higher operating income at Hong Kong Disneyland Resort attributable to:
  • Guest spending growth due to an increase in average ticket prices
  • Higher volumes resulting from increases in attendance and occupied room nights. Results reflected 81 days of operations in the current quarter compared to 65 days in the prior-year quarter.
  • Increased costs primarily attributable to new guest offerings and inflation

OTHER FINANCIAL INFORMATION

DTC Streaming Businesses:

Revenue and operating loss for our combined DTC streaming businesses, which consist of the Direct-to-Consumer line of business at the Entertainment segment and ESPN+ at the Sports segment, are as follows:

Corporate and Unallocated Shared Expenses

Corporate and unallocated shared expenses decreased $41 million for the quarter, from $334 million to $293 million, due to lower compensation and human resource-related costs.

Restructuring and Impairment Charges

In the current quarter, the Company recorded charges of $1,021 million comprising:

• $721 million of goodwill impairments related to our general entertainment and international sports linear networks
• $141 million for an impairment of an equity investment
• $137 million primarily for impairments of licensed content to align with the strategic change in our approach to content curation
• $22 million for severance

Other Income (Expense), net

In the prior-year quarter, the Company recorded a $63 million gain to adjust its investment in DraftKings, Inc. to fair value.

Interest Expense, net

Interest expense, net was as follows:

The increase in interest expense was primarily due to higher average rates, partially offset by lower average debt balances and higher capitalized interest.

The increase in interest income, investment income and other resulted from higher interest income on cash balances driven by an increase in interest rates, and a larger benefit from pension and postretirement benefit costs, other than service cost.

Equity in the Income of Investees

Equity in the income of investees was as follows:

Income from equity investees increased $85 million, to $227 million from $142 million, due to higher income from A+E.

Income Taxes

The effective income tax rate was as follows:

The decrease in the effective income tax rate was due to lower average tax rates on foreign earnings in the current quarter compared to the prior-year quarter. This benefit was largely offset by a less favorable effect from adjustments related to previous years’ tax matters and an unfavorable impact from the goodwill impairment, which was not tax deductible.

Noncontrolling Interests

Net income attributable to noncontrolling interests was as follows:

The increase in net income from continuing operations attributable to noncontrolling interests was due to improved results at our Asia Theme Parks and higher accretion of NBC Universal’s interest in Hulu.

Net income attributable to noncontrolling interests is determined on income after royalties and management fees, financing costs and income taxes, as applicable.

FULL YEAR CASH FLOW STATEMENT INFORMATION

Cash Flow

Cash provided by operations and free cash flow were as follows:

Cash provided by operations increased by $3.9 billion from $6.0 billion in the prior year to $9.9 billion in the current year. The increase was primarily due to lower spending on film and television content and higher operating income at Experiences, partially offset by the timing of payments for sports content.

Capital Expenditures and Depreciation Expense

Investments in parks, resorts and other property were as follows:

Capital expenditures were comparable to the prior year as lower spending at Experiences was offset by higher spending for Corporate facilities and at Entertainment. The decrease in spending at Experiences was due to lower spending on cruise ship fleet expansion. The increase in spending at Entertainment was driven by higher technology spending to support our streaming services.

Depreciation expense was as follows:

DTC PRODUCT DESCRIPTIONS AND KEY DEFINITIONS

Product offerings

In the U.S., Disney+, ESPN+ and Hulu SVOD Only are each offered as a standalone service or together as part of various multi-product offerings. Hulu Live TV + SVOD includes Disney+ and ESPN+. Disney+ is available in more than 150 countries and territories outside the U.S. and Canada. In India and certain 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 a standalone basis or together with Disney+ (Combo+). Depending on the market, our services can be purchased on our websites or through third-party platforms/apps or are available via wholesale arrangements.

Paid subscribers

Paid subscribers reflect subscribers for which we recognized subscription revenue. Subscribers cease to be a paid subscriber as of their effective cancellation date or as a result of a failed payment method. Subscribers to multi-product offerings in the U.S. are counted as a paid subscriber for each service included in the multi-product offering and subscribers to Hulu Live TV + SVOD are counted as one paid subscriber for each of the Hulu Live TV + SVOD, Disney+ and ESPN+ services. In Latin America, if a subscriber has either the standalone Disney+ or Star+ service or subscribes to Combo+, the subscriber is counted as one Disney+ paid subscriber. Subscribers include those who receive a service through wholesale arrangements including those for which the service is distributed to each subscriber of an existing content distribution tier. When we aggregate the total number of paid subscribers across our DTC streaming services, we refer to them as paid subscriptions.

International Disney+ (excluding Disney+ Hotstar)

International Disney+ (excluding Disney+ Hotstar) includes the Disney+ service outside the U.S. and Canada and the Star+ service in Latin America.

Average Monthly Revenue Per Paid Subscriber

Hulu and ESPN+ average monthly revenue per paid subscriber is calculated based on the average of the monthly average paid subscribers for each month in the period. The monthly average paid subscribers is calculated as the sum of the beginning of the month and end of the month paid subscriber count, divided by two. Disney+ average monthly revenue per paid subscriber is calculated using a daily average of paid subscribers for the period. Revenue includes subscription fees, advertising (excluding revenue earned from selling advertising spots to other Company businesses) and premium and feature add-on revenue but excludes Premier Access and Pay-Per-View revenue. The average revenue per paid subscriber is net of discounts on offerings that carry more than one service. Revenue is allocated to each service based on the relative retail or wholesale price of each service on a standalone basis. Hulu Live TV + SVOD revenue is allocated to the SVOD services based on the wholesale price of the Hulu SVOD Only, Disney+ and ESPN+ multi-product offering. In general, wholesale arrangements have a lower average monthly revenue per paid subscriber than subscribers that we acquire directly or through third-party platforms.

NON-GAAP FINANCIAL MEASURES

This earnings release presents diluted EPS excluding certain items, total segment operating income, free cash flow, and DTC streaming businesses operating income (loss), all of which are important financial measures for the Company, but are not financial measures defined by GAAP.

These measures should be reviewed in conjunction with the most comparable GAAP financial measures and are not presented as alternative measures of diluted EPS, income from continuing operations before income taxes, cash provided by continuing operations, or Entertainment and Sports segment operating income (loss) as determined in accordance with GAAP. Diluted EPS excluding certain items, total segment operating income, free cash flow, and DTC streaming businesses operating income (loss) as we have calculated them may not be comparable to similarly titled measures reported by other companies.

Diluted EPS excluding certain items

The Company uses diluted EPS excluding (1) certain items affecting comparability of results from period to period and (2) amortization of TFCF and Hulu intangible assets, including purchase accounting step-up adjustments for released content, to facilitate the evaluation of the performance of the Company’s operations exclusive of these items, and these adjustments reflect how senior management is evaluating segment performance.

The Company believes that providing diluted EPS exclusive of certain items impacting comparability is useful to investors, particularly where the impact of the excluded items is significant in relation 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 evaluate the impact of these items separately.

The Company further believes that providing diluted EPS exclusive of amortization of TFCF and Hulu intangible assets associated with the acquisition in 2019 is useful to investors because the TFCF and Hulu acquisition was considerably larger than the Company’s historic acquisitions with a significantly greater acquisition accounting impact.

The following table reconciles reported diluted EPS from continuing operations to diluted EPS excluding certain items for the fourth quarter:

The following table reconciles reported diluted EPS from continuing operations to diluted EPS excluding certain items for the year:

Total segment operating income

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 the performance of operating businesses separate from non-operating factors. The Company believes that information about total segment operating income assists investors by allowing them to evaluate changes in the operating results of the Company’s portfolio of businesses separate from non-operational factors that affect net income, thus providing separate insight into both operations and other factors that affect reported results.

The following table reconciles income from continuing operations before income taxes to total segment operating income: