Disney tops earnings forecasts with streaming gains, raises guidance

By Lisa Richwine and Dawn Chmielewski

LOS ANGELES, Aug 6 (Reuters) - Walt Disney DIS.N posted better-than-expected quarterly results and raised its annual profit forecast on Wednesday, led by gains in the streaming business, which is expected to be the centerpiece of its growth strategy in coming years.

In the last 24 hours, the media and entertainment company entered two major deals with the National Football League and WWE as it readies its $29.99-per-month ESPN streaming service that will give viewers access to sporting events, including the NFL and National Basketball Association.

The entertainment giant is betting that combining its Disney+, Hulu and ESPN services into a single streaming app will fuel growth of its profitable streaming service and help offset declines in its traditional television business. The company estimates its direct-to-consumer business will generate operating income of $1.3 billion in the fiscal year that ends in September, up 30% from its original guidance.

"We'll bundle that trio -- Disney+, Hulu and ESPN," Disney CEO Bob Iger told investors, calling it "an opportunity to lower churn (and) increase engagement." That bundle will also be offered at $29.99 as a one-year promotion.

Disney said its pivotal deal with the NFL, in which it will acquire the NFL Network and other media assets from the league in exchange for a 10% equity stake in Disney's ESPN sports network, will allow the company to offer a more compelling experience for football fans. The deal needs regulatory approval.

The company also negotiated exclusive rights to major wrestling events, including WrestleMania and Royal Rumble in the streaming service, set to launch August 21.

“Expect the earlier-than-planned launch of Disney’s ‘ESPN’ streaming service to give Disney’s direct-to-consumer (DTC) business a notable lift in revenue," said Forrester VP Mike Proulx.

"Disney is racing full force to sign sports rights with the company’s NFL and WWE announcements. This is yet another signal that the latest battle in the streaming war is all about live sports programming.”

Nonetheless, Disney's stock fell 3 percent in early trading, reflecting investor concern about the performance of the traditional television business, which saw a 28 percent decline in operating income.

“Investors are aware of the decline in linear TV but it was worse than expected," said Ben Barringer, head of technology research at Quilter Cheviot. "It is an industry-wide trend and very little can be done to arrest it."

Sports and experiences businesses dominated Thursday's investor call, as the company expands its global theme parks and adds more vessels to its cruise line.

Chief Financial Officer Hugh Johnston said Walt Disney World posted a record third quarter. He said bookings are up 6% for the fourth quarter.

RAISED FORECAST

For the full year ending in September, the company projected adjusted EPS of $5.85, a 10-cent rise from prior forecasts.

The company projected adding 10 million Disney+ and Hulu subscribers in the current quarter, most of them from an expanded partnership with cable operator Charter CHTR.O.

In the just-ended quarter, adjusted earnings per share rose 16% from a year ago to $1.61. Analysts had expected $1.47, according to LSEG data.

Disney+ and Hulu subscriptions increased by 2.6 million to 183 million, powering a 6% increase in revenue at the direct-to-consumer business. The unit posted operating income of $346 million, compared with a loss of $19 million a year ago.

Operating income in the entertainment division fell 15% to $1 billion. Disney attributed the drop to lower results from traditional television networks and the strong performance of the film "Inside Out 2" a year earlier.

Disney's parks division reported a 13% gain in operating income to $2.5 billion. Profit at domestic parks rose 22% even with new competition in Orlando, Florida, from Universal's CMCSA.O Epic Universe, which opened in late May, as visitors increased their spending.

At the sports unit, operating income rose 29% to $1 billion. Domestic ESPN profit fell 3%, partly from higher programming and production costs, including rate increases for NBA games and college sports.