Disney misses earnings, sales expectations in Q3 results

Disney (DISreported third-quarter results that missed consensus expectations, as costs mounted for the entertainment conglomerate ahead of its Disney+ streaming platform launch later this year.

Here were the main numbers from the report, versus Bloomberg-compiled estimates:

  • Revenue: $20.25 billion vs. $21.44 billion expected

  • Adj. earnings: $1.35 per share, vs. $1.71 per share expected

Shares of Disney fell 4.9% to $135.00 each as of 4:08 p.m. following the disappointing results.

“Our third-quarter results reflect our efforts to effectively integrate the 21st Century Fox assets to enhance and advance our strategic transformation,” Bob Iger, Disney chairman and CEO, said in a statement.

Over the past several months, investors have been closely eyeing updates relating to Disney+, the company’s over-the-top streaming service set to launch in November.

During a call with investors Tuesday, Disney’s management said the company will offer a bundle of its ESPN+, Disney+ and ad-supported Hulu platforms for $12.99 per month. Previously, the company had only announced the basic Disney+ subscription for $6.99 a month.

The platform – which will host Marvel, Pixar, Star Wars and Disney animated content – has already required major investment from the company as it prepares to compete with the likes of Netflix (NFLX) and forthcoming services like AT&T (T) WarnerMedia’s streaming service. Softness in the former’s subscriber numbers has signaled a potential inroad for Disney to sweep up market share: Last month, Netflix reported its first-ever quarterly decline in domestic subscribers, which the company blamed in part on weaker programming during the period.

“We feel that we can focus more on quality than on quantity,” Iger said during a call with investors Tuesday. “If you compare us to Netflix, we’re going to have far less products than they do, but we’re relying on the strength of our brands and the fervor that fans of those have for the products that we make under those brand umbrellas.”

During the quarter, Disney’s operating loss in its direct-to-consumer segment, which houses Disney+, widened to $553 million, from $168 million in the year-ago period. The company attributed the increase in operating losses to the consolidation of Hulu, the ramp up of investment in ESPN+, and costs associated with Disney+. Disney last quarter had guided toward a hit to Q3 operating income in its direct-to-consumer segment to the tune of $460 million as a result of these factors. For the fourth-quarter, Disney expects direct-to-consumer operating losses for the quarter will widen further to $900 million.

Disney’s acquisition of 21st Century Fox, a deal the closed in March aimed at further padding Disney’s content library, also dented earnings. The company estimated that the acquisition had a dilutive impact to earnings per share of about 60 cents, versus the 35 cents per share impact previously anticipated. For the fourth quarter, the Fox deal is expected to hit profit by 45 cents per share.

Meanwhile, Disney’s Media Networks business segment posted a 7% increase in operating profit to $2.14 billion. However, within this unit, broadcasting operating income fell 17% year-over-year, which Disney attributed to lower ABC Studios program and networking advertising revenues.

But other segments were stronger for the quarter. Disney’s Parks, Experiences and Products revenue increased 7% to $6.6 billion and operating income rose 4% to $1.7 billion, although the company did call out lower attendance at its domestic parks. And Disney’s studio entertainment operating income totaled $792 million, an increase of 12% over last year. This marked a turnaround from the company’s fiscal second-quarter, when a weaker content slate led to a 39% year-over-year decline in quarterly operating income in the unit.

In the reported quarter, Disney released titles including the smash hit Avengers: End Game, which recently became the highest-grossing film ever in box offices. A number of its other films – including The Lion King, Aladdin, Captain Marvel and Toy Story 4 – also made the list for the top 10 highest-grossing films in the U.S. for the year-to-date. Later this year, Disney will release highly anticipated films including Frozen 2 and Star Wars: The Rise of Skywalker.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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