Disney shares surge on earnings beat and many more positive things to like

Disney shares surged Wednesday on a strong quarter and positive guidance. The cherry on top was plans for a new theme park in the United Arab Emirates, a sign of long-term confidence in its profit engine. Revenue in the three months ended March 29 increased 7% year over year to $23.62 billion, topping expectations of $23.14 billion, according to LSEG. Adjusted earnings per share in the fiscal 2025 second quarter totaled $1.45, beating expectations of $1.20. On an annual basis, adjusted EPS jumped 20%. DIS YTD mountain Disney YTD Shares of Disney added more than 11% on pace for their first close above $100 since March 27. That was just days before President Donald Trump ‘s “reciprocal tariffs” announcement on the evening of April 2 tanked the market. Trump’s temporary pause of the worst levies a week later lifted the market and Disney shares. However, the Club stock was basically flat since then until Wednesday’s earnings-fueled rally. Bottom line The Disney magic, which has not been a constant presence in recent years, is filling the air on Wednesday — and for good reason. In addition to the top and bottom line beats, Disney increased its full-year adjusted earnings guidance to $5.75, which implies 16% growth from the year-ago period when its previous outlook called for high-single-digit growth. Better yet, CFO Hugh Johnston said Disney’s projections of double-digit earnings growth in fiscal 2026 and 2027 remain intact, even with 2025 having a higher comparison base. With investors increasingly worried that a slowdown in consumer spending, and the economy more generally, could eventually affect Disney’s highly profitable experiences business, we like what we heard Wednesday. The experiences segment — home to its theme park and cruise business — topped revenue and profit expectations for the quarter. But more importantly, Disney reiterated its fiscal 2025 operating income expectations for the segment and provided encouraging commentary about bookings growth in its current fiscal third quarter and the July-to-September period. With about 80% of the current quarter (fiscal Q3) in, bookings are up 4%, Johnston said on the call. They’re up 7% for the fiscal fourth quarter with 50% to 60% of the window closed, he said. That data is also positive, considering that Universal’s Epic theme park is opening this month. NBCUniversal and CNBC are both owned by Comcast . Of course, it does not fully put these legitimate slowdown concerns to bed because trips are generally booked multiple months in advance. That means the economic developments of recent weeks and any potential weakening in the months ahead could impact booking decisions made for Disney’s fiscal 2026. Nevertheless, considering the level of negativity around this business, these updates are encouraging. The streaming business also stood out in a big way. Disney+ saw a surprising sequential gain in subscribers during the reported three-month period after the company’s own guidance provided in early February called for a “modest” loss. It ended the quarter with 126 million Disney+ subscribers, up 1.4 million from the first quarter. Even better, executives on Wednesday guided for another quarter-over-quarter gain in subscribers. “Moana 2,” one of Disney’s strong theatrical releases last year, has also seen great traction since hitting streaming in March — showing how its collection of businesses can benefit one another over time, often called the “flywheel effect.” Our style is never to chase a stock on a day when it’s surging like Disney is on Wednesday. Still, we’re reiterating our buy-equivalent 1 rating and reiterating our $130 price target. Commentary Something that’s quite apparent in Disney’s quarterly results: CEO Bob Iger’s cost-cutting efforts continue to bear fruit, just as they did in the company’s fiscal first quarter. As the chart above shows, fiscal second-quarter operating income for all three operating segments exceeded Wall Street expectations (and so did revenue, for that matter). Zooming in, the direct-to-consumer streaming business delivering $336 million in operating income is particularly encouraging, given it had for so long been a money-losing operation. That’s now three quarters in a row of at least $250 million in operating income for the combined streaming unit. On Wednesday’s conference call, Iger said Disney’s efforts to bundle its various streaming services — particularly embedding Hulu into the Disney+ app — are “definitely having a positive impact. Not only is engagement up, but churn is down, and significantly.” Disney is also set to launch a streaming version of its ESPN cable channel by the fall, referred to as ESPN Flagship up to this point. Iger said an official name and more details on pricing are coming next week. However, he did offer some updates Wednesday, including that people who subscribe to ESPN Flagship through a broader Disney streaming bundle will have a “fully integrated” experience. “If you’re a subscriber of all three, you’ll have a seamless experience there. They’ll be completely ultimately integrated or embedded into the service. And that, I think, is a real plus from a consumer experience perspective,” Iger said. Additionally, people who subscribe to ESPN through a traditional cable package will “automatically get what I know we’ve been referring to as ESPN Flagship,” Iger said. There was a lot to like at the experiences business, as touched on in the bottom line. Here are a few other points to highlight. The company’s newest cruise liner, Disney Treasure, is now in its second full quarter of operations and ratings for the ship are “just sky high,” Iger said. The CEO said the two ships set to join the fleet later this year “will take full advantage of everything that the Treasure has taken advantage of and then some.” One of those ships is the Disney Adventure, which will call Singapore its homeport. “We put it on sale just a few months ago, and the first quarter sold out in a matter of days, for instance. So there’s clearly a desire of consumers to engage with Disney in a wide region,” Iger said. Iger and the Disney team believes that includes the United Arab Emirates, where Disney announced Wednesday it will build its seventh theme park in Abu Dhabi, the capital of the UAE. What’s interesting here is Disney is partnering with local developer the Miral Group, which is developing and funding the project. Disney will oversee the creative design and provide operational oversight, while licensing its intellectual property to collect royalties. Iger said Disney employees will be embedded within Miral “to help them operate a Disney theme park, basically the quality level that everybody is used to.” With the amount of money Disney has committed to spend to expand its parks in California and Florida, the deal structure with the Miral Group makes a lot of sense. In a CNBC interview, Iger said the Abu Dhabi venture’s structure most closely resembles Tokyo Disneyland, though it’s not exactly the same. Of course, these kinds of properties don’t get developed overnight. No specific opening date was announced, but Iger said on CNBC it will be longer than five years before guests will be able to attend the Abu Dhabi park. Guidance Disney increased its 2025 guidance on a couple metrics. Adjusted EPS of $5.75, which would be a 16% increase compared with the prior fiscal year. Previous guidance called for high-single digit growth. Cash provided by operations of $17 billion, an increase of $2 billion from the prior guide. To be sure, deferral of tax payments is the main driver of the revision. Sports operating income up 18% year over year, up 5 percentage points from previous guidance. It reiterated guidance in the following areas. Entertainment operating income up double digits versus the prior year. Experiences operating income up between 6% to 8% year over year. Disney Cruise Line preopening expense of $200 million. Finally, as noted earlier, the company expects a modest sequential increase in Disney+ subscribers in ira fiscal third quarter — an encouraging development given the past earnings reports included guidance for losses. (Jim Cramer’s Charitable Trust is long DIS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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People walk in front of Cinderella’s Castle at the Magic Kingdom Park at Walt Disney World on May 31, 2024, in Orlando, Florida.

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