Why Disney Stock Dropped Today
Key Points
Disney is struggling with higher costs across its major business lines.
Management claims earnings growth will rebound in the second half of the year.
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Shares of Walt Disney (NYSE: DIS) fell on Monday, as the shift away from cable TV took a toll on the entertainment giant's profits.
By the close of trading, Disney's stock price was down more than 7%.
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Cord-cutting continues to cut into Disney's earnings
Disney's revenue rose 5% year over year to $26 billion in the quarter ended Dec. 27. Yet the media titan's adjusted earnings per share fell 7% to $1.63, as higher costs dented its margins.
Operating income in the company's entertainment division -- which includes Disney's broadcasting and cable networks, film studios, and streaming services -- plunged 35% to $1.1 billion. Higher programming and production costs (some of which were related to Disney's deal to integrate Fubo's operations into its Hulu + Live TV business) contributed to the shortfall.
Meanwhile, operating profit in Disney's sports division, which houses its ESPN operations, sank 23% to $191 million. Rising costs for sports rights, combined with subscriber losses, drove the downturn.
Disney's leadership forecast solid growth, despite additional challenges
For the current quarter, Disney warned that slowing traffic trends at its domestic parks, pre-launch costs for a new Disney cruise line, and pre-opening costs for World of Frozen at Disneyland Paris would combine to slow operating income growth at the company's lucrative experiences division.
Still, management guided for double-digit growth in adjusted earnings per share in fiscal 2026, with much of the gains projected to come in the second half of the year. Disney also expects to generate $19 billion in full-year operating cash flow.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool has a disclosure policy.
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