Disney tops earnings forecast, shares soar in extended trading

Walt Disney handily beat Wall Street's earnings expectations on Wednesday, lifted by record results at its theme parks and continued cost-cutting efforts, as it announced an investment in Fortnite-maker Epic Games.

Even before the company's investor call, CEO Bob Iger announced in a CNBC interview that the company would take a $1.5 billion stake in Epic and work with the company to create a "huge Disney universe."

"This marks Disney’s biggest entry ever into the world of games and offers significant opportunities for growth and expansion," Iger said in a statement.

Disney described an online world in which consumers will be able to play, watch, shop and engage with characters and stories from Disney, Pixar, Marvel, Star Wars and Avatar.

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The announcement signals another attempt at interactive entertainment for Disney, which in 2016 shut down its Disney Interactive Studios, publisher of the toys-come-to-life game series "Infinity," and announced it would instead license its characters to outside game companies.

Shares of Disney were up 7% in after-hours trading.

Disney's board of directors also authorized a $3 billion share repurchase program for the current fiscal year, and declared a dividend of 45 cents a share, payable on July 25 to shareholders of record on July 8. That represents a 50% increase from the dividend paid in January.

The company posted earnings of $1.22 per share, excluding certain items, ahead of analysts' consensus forecast of 99 cents per share for October through December.

Quarterly revenue was comparable to a year ago, at $23.5 billion, but short of projections of $23.6 billion.

Disney said it cut $500 million in costs across its business during the quarter, and that it remains on track to meet or exceed $7.5 billion in savings by the end of the current fiscal year.

The company is under pressure from activist investor Nelson Peltz, who is seeking Netflix-like profit for its streaming business, better performance of its movies at the box office, and more details about its plans to make ESPN a dominant digital platform.

"Just one year ago, we outlined an ambitious plan to return the Walt Disney Company to a period of sustained growth and shareholder value creation," Iger said in a statement. "Our strong performance this past quarter demonstrates we have turned the corner and entered a new era of growth for our company."

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The company's Experiences unit, which includes its theme parks and consumer products, posted record revenue, operating income and operating margins.

Disney reaffirmed guidance that its streaming business would reach profitability by September. It reduced streaming operating losses to $138 million in the quarter, a dramatic improvement over a year ago, when it lost nearly $1 billion. The average monthly revenue per Disney+ user, outside of India, rose 14 cents.

The Disney+ streaming service shed 1.3 million subscribers, nearly double the loss of 700,000 that analysts forecast, after an October price increase.

The company forecast it would gain 5.5 million to 6 million Disney+ subscribers in its second quarter, with positive momentum in per-user revenue.

The Entertainment unit's streaming business, which also includes Hulu and Disney+ Hotstar in India, reported revenue of $5.5 billion, just above forecasts, and marking a 15% improvement from a year ago.

Overall revenue for the Entertainment segment, which encompasses Disney's traditional TV business, streaming and film, dropped 7% from a year earlier to $9.98 billion.

The results were dragged down by lower ad revenue at ABC and lower fees from the continued losses of cable subscribers, partially offset by reduced programming costs associated with the Hollywood strikes. The weak box office performance of "The Marvels" and "Wish," compared with the strong results a year ago from "Black Panther: Wakanda Forever" and "Avatar: The Way of Water," dragged content sales and licensing to a loss.

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Disney's sports division, which includes ESPN, the ESPN+ streaming service and Star in India, reported revenue of $4.8 billion, a gain of 4% from a year ago, but an operating loss of $103 million attributable to a deepening loss at Star in India.

Theme park results were buoyed by the opening of the World of Frozen attraction at Hong Kong Disneyland and Zootopia at Shanghai Disney Resort. Higher attendance at those parks helped offset a drop at Walt Disney World in Orlando, Florida. The unit reported revenue of $9.1 billion and operating income of $3.1 billion.