Disney Slashes Costs By $2B, Returns To Profit As Iger Counters Peltz

Samantha Miller

BURBANK, Calif. – The Walt Disney Company reported higher than expected fourth quarter earnings on Wednesday, beating analysts’ estimates as it announced an additional $2 billion in cost cuts. The move comes as Disney fights off activist investor Nelson Peltz, who is seeking board seats to push for changes at the media and entertainment giant.

Disney posted adjusted earnings per share of 82 cents, excluding some items, surpassing average analyst estimates of 69 cents. Total revenue for the quarter rose 5.4% to $21.2 billion, slightly below expectations of $21.4 billion.

The company said the new wave of cost reductions, building on the $5.5 billion in cuts previously announced, will shift Disney from “an era of fixing to an era of building” in the words of CEO Bob Iger. Disney plans to resume dividend payments, suspended during the pandemic, by the end of 2023 – addressing a key concern raised by Peltz.

Shares of Disney jumped over 3% to $87 in after-hours trading following the earnings announcement. The stock had fallen around 8% since Iger returned as CEO in November after the ouster of his successor, Bob Chapek.

Cost Cutting, Not Job Cuts

Disney said the additional $2 billion in budget trims are not expected to result in widespread job losses like the 8,000 positions already eliminated this year. The total $7.5 billion in savings would reduce Disney’s annual expenses 17% below 2021 levels.

The cuts are aimed at improving profitability through restructuring and other efficiency measures across the company’s sprawling business units. Disney’s empire spans movie studios, broadcast and cable TV networks, streaming services, consumer products, theme parks and resorts.

“We are committed to achieving meaningful efficiencies without compromising our creative capability,” Iger said on a call with analysts. He emphasized the cost reductions will allow increased investment in content and innovation.

Parks Lead Profit Surge

Disney’s parks division delivered the largest profit growth in the quarter, with earnings up 31% to $1.76 billion as revenue climbed 12% to $8.16 billion. The parks unit was led by a 55% jump in international profits as guests returned following COVID-19 disruptions.

The strong parks performance underscores the value of Disney’s iconic brands and franchises, from classic characters like Mickey Mouse to hit properties like Star Wars. Peltz has argued the company should better leverage its intellectual property while keeping costs in check.

Streaming Losses Narrow

Losses in Disney’s streaming segment, including ESPN+, narrowed to $387 million, beating Wall Street estimates. The company reiterated guidance that the streaming unit will become profitable by the fourth quarter of fiscal 2023.

The total number of Disney+ subscribers rose to over 150 million globally, returning to growth and surpassing estimates. Excluding the India market, Disney+ subscribers increased 7% to 112.6 million. Disney is regaining momentum in streaming after growth stalled earlier this year.

The company plans to launch an integrated app for Disney+ and Hulu in March, which Iger said will provide a “more elegant” user experience. Disney is also buying Comcast’s one-third stake in Hulu for at least $8.6 billion, giving it full control of the service.

TV Networks Face Ongoing Declines

Earnings at Disney’s TV networks were essentially flat at $805 million, while revenue declined 9% to $2.63 billion amid ongoing subscriber losses. The results underscore the challenges facing Disney’s traditional broadcast and cable networks, including ABC, FX and NatGeo, as viewers shift to streaming.

Rival Warner Bros. Discovery on Wednesday reported a 17.5% drop in ad revenue at its networks and said the ad market could remain weak in 2023. Disney has been exploring options for its TV networks, including a sale or partnership.

During an interview on CNBC, CEO Iger said the main ESPN network will be offered as a standalone streaming service by 2025 at the latest. Iger is also considering bringing Disney programming back to Netflix, while keeping flagship brands exclusive to Disney+.

Activist Investor Peltz Seeks Board Seats

The moves to cut costs, resume dividends and accelerate streaming plans come as activist investor Nelson Peltz pushes for changes at Disney. Peltz’s Trian Fund Management is seeking several board seats after acquiring a stake worth about $2.5 billion.

Peltz previously pushed Iger to make the first round of $5.5 billion in cuts before dropping a bid for board representation. He argues Disney’s expenses have been too high and is seeking more strategic focus and accountability.

Disney appointed longtime PepsiCo CFO Hugh Johnston as its new Chief Financial Officer this week. Johnston has experience managing a large consumer brand under activist pressure, guiding Pepsi through a campaign by Peltz in the early 2010s.

The fight with Peltz will heat up as Disney’s annual shareholder meeting approaches in the spring. Peltz has support from influential backers like Ike Perlmutter, Disney’s former Marvel chairman. Perlmutter pledged shares from his near 5% Disney stake to Peltz’s campaign.

Iger ousted Perlmutter shortly after returning as CEO, but Peltz’s push shows the billionaire investor still wields influence. With costs falling and streaming plans advancing, Iger aims to prove Disney is on the right track and doesn’t need disruption from Peltz.

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Samantha Miller is a business and finance journalist with over 10 years of experience covering the latest news and trends shaping the corporate landscape. She began her career at The Wall Street Journal, where she reported on major companies and industry developments. Now, Samantha serve as a senior business writer for Modernagebank.com, profiling influential executives and providing in-depth analysis on business and financial topics.
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