Disney stock leaps as earnings impress, cash flow forecast ignites dividend hopes

Walt Disney DIS shares powered higher in early Thursday trading after the media and entertainment giant posted mixed fourth quarter earnings but forecast significant cash flow gains, alongside deeper cost cuts, that could restore the group's dividend over the coming year. 

Bob Iger, who returned as interim CEO in November of last year, has put the reinstatement of Disney's quarterly dividend at the top of his list of priorities for the group as he seeks to inject new life into its sprawling empire of studios, streaming, sports, theme parks and cruises. 

Disney stopped paying its regularly quarter dividend, last pegged at 88 cents per share, during the peak of the Covid pandemic in May of 2020. 

"As I reflect on our achievement this past year, I'm mindful of the fact that a lot of time and effort was spent on fixing, both contending with certain decisions made in the recent past and addressing the numerous challenges brought on by disruption and the pandemic," Iger told investors on a conference call late Wednesday.

"And while we still have work to do to continue improving results, our progress has allowed us to move beyond this period of fixing and begin building our businesses again," he added.

A large part of his turnaround effort was evident in last night's earnings release, which for the first time broke down the group's profits into three major segments, with the ESPN-lead sports division reporting as a stand-alone division.

Sports-focused profits for the fourth quarter were up 14% from the same period last year to $981 million, topping Street forecasts of around $862 million, with revenues pegged at $3.91 billion. 

At a headline level, Disney generated just under $3 billion, in operating profits for the three months ending in September, its fiscal fourth quarter, as overall revenues rose 5.4% from last year to $21.35 billion.

Disney also said it would accelerate its cost-cutting program by around $2 billion, taking it to $7.5 billion per year, and lower its content spending by around $2 billion. Collectively, Disney said that will help it grow free cash flows "significantly", later adding it sees that total at around $8 billion. 

"This continued robust free cash flow growth, alongside our strong balance sheet, will position us well to address our investments and shareholder return goals for the year and going forward," said interim CFO Kevin Lansberry. "To that end, we will be recommending to the board that they declare a dividend by the end of this calendar year."

"While this will be just the starting point, we do see ample opportunity to continue to increase shareholder returns in the future as our earnings and free cash flow grow in the form of increased dividends or share buybacks and we look forward to sharing more as we move ahead," he added. 

Disney shares, a Dow component, were marked 3.86% higher in pre-market trading to indicate an opening bell price of $87.76 each, although the move would still leave the stock nursing a six month decline of around 14%, compared to a 1.6% advance for the benchmark. 

Overall Disney+ paid subscribers rose by 7 million from the previous quarter, the company said, doubling Street forecasts, while Hotstar subs fell by around 4 million to 37.6 million, putting the overall total at 150.2 million.

Streaming-division losses were pegged at $387 million, down from around $1.5 billion last year and the $512 million loss pegged over the previous quarter.

Experiences profits were up 31% from last year to $1.8 billion, topping Street forecasts, thanks to solid gains from international theme parks such as Hong Kong. while Entertainment division profits was pegged at $236 million, compared to a loss of $608 million last year.

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