It's a Small World After All for Disney

Walt Disney (NYSE: DIS) is delivering a "beat and raise" performance in more ways than one on Wednesday. The family entertainment behemoth announced better-than-expected financial results, boosting its guidance for all of fiscal 2025 in the process. Disney also announced that it will help "raise" a new theme park in Abu Dhabi, making it the seventh Disney-branded resort worldwide.

It was the sprinkling of levitational pixie dust that Disney stock needed. The shares had fallen 19% since its previous financial update, and the stock was underperforming the overall market for the fourth time in the past five years. Like any good Disney animated classic, sometimes you need to go through some challenges before reaching a happy ending as the credits roll. Can it stick the landing on this fairy tale finish? Let's take a closer look.

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Hakuna matata

Expectations were low heading into Wednesday morning's financial update. Analysts were modeling $23.1 billion in revenue for the first three months of the calendar year, a modest 5% increase. They also figured that adjusted earnings would be flat with the $1.21 a share it posted in the prior year's fiscal second quarter.

Reality proved to be heartier than the margin-contracting build-up. Disney's top line rose 7% to $23.6 billion. The bigger beat came at the other end of the income statement. Adjusted earnings soared 20% to $1.45 a share, fueled by a 15% jump in segment operating income.

Disney's theme parks business was widely expected to be a laggard. Rival Comcast posted a 5% decline for its theme parks business for the same three-month period earlier this earnings season, with a 32% plunge in the segment's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). One analyst note last week was predicting a 1% decline in turnstile clicks at Disney's domestic theme parks. The final numbers proved more inspiring. Disney's domestic parks and experiences business came through with a 9% increase in revenue along with a 13% jump in operating income.

A big part of Disney's bottom-line beats over the past year has been the profitable turn of its direct-to-consumer streaming operations helmed by Disney+ and its other premium streaming services. Momentum continues to build with that segment's operating profit soaring sevenfold from its profitable breakthrough in the fiscal second quarter a year earlier. Disney's legacy linear networks continue to fade, but when you combine that transitory segment with the streaming offerings birthed out of the self-disruption, the overall business is growing.

Disney now sees its adjusted earnings for the entire fiscal 2025 year that ends in September clocking in at $5.75 a share, a 16% increase over fiscal 2024. Disney was previously forecasting single-digit growth in fiscal 2025 before accelerating to double-digit growth in the next two years. It's getting there a year early. Analysts were only holding out for a profit of $5.44 a share this fiscal year. The fiscal second quarter's beat accounts for the lion's share of the upward revision, but it's still an impressive beat at a time when Disney needed it the most.

Image source: Disney.

A whole new world

Disney also turned heads by announcing plans for a seventh resort on Abu Dhabi's Yas Island. Similar to its arrangement with Tokyo Disney resort, it will not have an ownership stake or be on the hook for any capital contributions to the project. Disney will help in the design and the development of the resort, receiving a stream of ongoing royalties in the process.

It's an incremental product with little downside risk. Even geographically speaking, it should not cannibalize guest counts at Disney's other six resorts. In its earnings call, CEO Bob Iger pointed out how it recently announced positioning a cruise ship from its growing fleet in Singapore. Within days of availability it sold out the first quarter of sailings.

With the strong financials and park expansion news delighting investors, Disney is reversing the bearish narrative. Disney stock jumped above $100 again on Wednesday morning's initial surge. Is that the credits rolling after a Disney ending? One can argue that the House of Mouse is just getting started.

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Rick Munarriz has positions in Comcast and Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.