Disney posts first-ever streaming profit, warns of pressure on theme-parks unit

The entertainment giant’s streaming unit, which includes flagship platform Disney+, general entertainment service Hulu and the sports-focused ESPN+, became profitable one quarter ahead of schedule, producing operating income of $47 million on $6.38 billion in revenue, Disney said Wednesday.

Overall, Disney swung to a profit of $2.62 billion for the quarter from a loss of $460 million a year earlier, when the company took substantial restructuring and impairment charges. Revenue rose 3.7% to $23.16 billion. Both results exceeded Wall Street expectations: Analysts polled by FactSet had anticipated net income of $1.94 billion and revenue of $23.08 billion.

Disney raised its forecast for full-year growth in adjusted earnings per share to 30% from 25% and said it expects both streaming profitability and the company’s number of core Disney+ subscribers to grow in the fourth quarter.

While Disney’s quarterly streaming profit was small, the shift in that unit’s fortunes is symbolically important. Since the launch of Disney+ in November 2019, Disney has lost more than $11 billion to the streaming wars, as competition from rivals and rising content costs forced the company to spend more to produce and license TV shows, sporting events and movies than it was generating in subscription fees, quarter after quarter.

The company raised the price of its streaming offerings several times over the past couple of years, which it said helped boost subscription revenue growth. On Tuesday, Disney announced a new round of price increases for nearly all of its streaming plans, effective in October.

More eye-catching was the overall performance of Disney’s Entertainment unit, which also includes its movie studios and legacy television business.

The division that includes theatrical film releases reported income of $254 million, up from a loss of $112 million a year earlier and its first profit since early 2022.

Disney said the result was driven in large part by the strong box office performance of “Inside Out 2," the coming-of-age animated feature produced by Disney-owned Pixar. The film opened in early June, just weeks before the fiscal quarter ended, and has since sold nearly $1.6 billion in tickets at the global box office, becoming the highest-grossing animated film of all time. The runner-up is another Disney title, 2019’s “Frozen II."

Disney said that it expects the theatrical film division to produce a similarly sized profit next quarter, when investors will see the impact of “Deadpool & Wolverine," from Disney-owned Marvel Studios. The film generated the highest-ever box office gross for an R-rated movie when it opened last month and has so far earned $824 million in global ticket sales.

Last year, Chief Executive Bob Iger, who returned from retirement in November 2022, said Disney’s movie studios had hit a rut and that its “performance from a quality perspective wasn’t really up to the standards that we set for ourselves." He vowed to make fewer movies and focus more on quality.

Strong results from the entertainment unit made up for softness in the Experiences division, Iger said. “With our complementary and balanced portfolio of businesses, we are confident in our ability to continue driving earnings growth," he said Wednesday in a statement.

The Experiences unit, which includes Disney’s six global theme-park resorts, a cruise line, consumer products sales, videogame licensing, and other businesses, saw revenue increase slightly to $8.39 billion. But operating income fell 3.3% to $2.22 billion despite steady park attendance numbers and per-visitor spending, largely because of increased costs and soft consumer demand toward the end of the quarter, the company said. Analysts polled by FactSet had expected the division to produce $2.3 billion in operating income.

Disney forecast more challenges for the theme parks business. The company said it expects operating income in the division to fall by mid-single-digit percentage points in the fiscal fourth quarter, because of continued softening of demand at its U.S. theme parks, competition for tourist dollars at Disneyland Paris from the Summer Olympics, currently being held in the French capital, and softening of demand in China.

In recent years, the theme parks business has emerged as the company’s most reliable generator of profit while other legacy businesses have declined, especially cable TV. Revenue from the division that includes theme parks has represented 30% to 40% of Disney’s overall sales for most of the past decade, but the division’s share of operating income has grown steadily, to 69% in fiscal 2023 from 39% in 2018.

This year, it became clear that the parks business was hitting some turbulence when Disney unexpectedly reported that operating income in the segment would likely be flat for the June quarter. The company said it was seeing “some normalization of post-Covid demand."

Disney rival Comcast, which owns and operates the Universal Studios chain of parks, reported weak results in late July, mostly because of lower attendance at Universal’s domestic parks. The company said it expects lower attendance to continue into next year.

“Those Comcast numbers were scary," said Doug Creutz, an analyst with TD Cowen. “Obviously, there’s been a slowdown in demand. Going to the parks is an expensive trip, so you’ve got to feel at least somewhat comfortable with your economic situation."

Write to Robbie Whelan at robbie.whelan@wsj.com