Global entertainment and media company Disney (NYSE:DIS) reported results in line with analysts' expectations in Q1 CY2024, with revenue up 1.2% year on year to $22.08 billion. It made a GAAP loss of $0.01 per share, down from its profit of $0.69 per share in the same quarter last year.

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“Our strong performance in Q2, with adjusted EPS(1) up 30% compared to the prior year, demonstrates we are delivering on our strategic priorities and building for the future,” said Robert A. Iger, Chief Executive Officer, The Walt Disney Company.

Founded by brothers Walt and Roy, Disney (NYSE:DIS) is a multinational entertainment conglomerate, renowned for its theme parks, movies, television networks, and merchandise.

Media

The advent of the internet changed how shows, films, music, and overall information flow. As a result, many media companies now face secular headwinds as attention shifts online. Some have made concerted efforts to adapt by introducing digital subscriptions, podcasts, and streaming platforms. Time will tell if their strategies succeed and which companies will emerge as the long-term winners.

Sales Growth

A company’s long-term performance can be indicative of its business health. Any business can put up a good quarter or two, but many enduring ones muster tend to grow for years. Disney's annualized revenue growth rate of 8.3% over the last five years was weak for a consumer discretionary business.

Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow more recent performance. Disney's recent history shows its demand slowed as its annualized revenue growth of 7.2% over the last two years is below its five-year trend.

We can dig further into the company's revenue dynamics by analyzing its three most important segments: Entertainment, Sports, and Experiences, which are 44.4%, 19.5%, and 38% of revenue. Over the last two years, Disney's Entertainment revenue (movies, Disney+) averaged 1.8% year-on-year declines, but its Sports (ESPN, SEC Network) and Experiences (theme parks) revenues averaged 6.7% and 24.4% growth.

This quarter, Disney grew its revenue by 1.2% year on year, and its $22.08 billion of revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 5.7% over the next 12 months, an acceleration from this quarter.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Disney has shown weak cash profitability over the last two years, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin averaged 5.5%, subpar for a consumer discretionary business.

Disney's free cash flow clocked in at $2.41 billion in Q1, equivalent to a 10.9% margin. This quarter's result was good as its margin was 1.8 percentage points higher than in the same quarter last year. Over the next year, analysts predict Disney's cash profitability will fall. Their consensus estimates imply its free cash flow margin of 9.4% for the last 12 months will decrease to 8.1%.

Key Takeaways from Disney's Q1 Results

It was encouraging to see Disney slightly top analysts' operating margin expectations this quarter. On the other hand, its its Experiences revenue fell short of Wall Street's estimates, leading to a slight total revenue miss. Overall, the results could have been better. The company is down 4.7% on the results and currently trades at $110.93 per share.

Disney may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.