Walt Disney Company (The)

Good day, and welcome to the Walt Disney Company Fourth Quarter 2025 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad, and to withdraw your question, please press star then two. Please note that today's event is being recorded. I would now like to turn the conference over to Carlos Gomez, Executive Vice President, Treasurer, and Head of Investor Relations. Please go ahead.

Good morning. It's my pleasure to welcome everyone to the Walt Disney Company's fourth quarter 2025 earnings call. Our press release, Form 10-K, and management's posted prepared remarks were issued earlier this morning and are available on our website at www.disney.com forward slash investors. Today's call is being webcast, and a replay and transcript will be made available on our website after the call. Before we begin, please take note of our cautionary statements regarding forward-looking statements on our investor relations website. Today's call may include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including regarding the company's future business plans, prospects and financial performance, are not historical in nature and are based on management's assumptions regarding the future and are subject to risks and uncertainties, including, among other factors, economic, geopolitical, operating and industry conditions, competition, execution risks, the market for advertising, our future financial performance, and legal and regulatory developments. Refer to our investor relations website, the press release issued today, and the risks and uncertainties described in our Form 10-K, subsequent Form 10Qs, and other filings with the SEC for more information concerning factors and risks that could cause results to differ from those in the forward-looking statements. A reconciliation of certain non-GAAP measures referred to on this call to the most comparable GAAP measures can be found on our Investor Relations website. Joining me this morning are Bob Iger, Disney's Chief Executive Officer, and Hugh Johnston, Senior Executive Vice President and Chief Financial Officer. Following introductory remarks from Bob, we will be happy to take your questions. So with that, I will now turn the call over to Bob.

Thank you, Carlos, and good morning, everyone. This was another year of great progress as we strengthened the company by leveraging the value of our creative and brand assets and continued to make meaningful progress in our direct-to-consumer businesses, resulting in strong earnings growth for the company. Adjusted EPS for fiscal 2025 was up 19% from fiscal 2024. And over the past three fiscal years, we have delivered a 19% compound annual growth rate in adjusted EPS. Our strategy and portfolio of complementary businesses, coupled with a strong balance sheet, enable us to continue to grow adjusted EPS and free cash flow over time. For fiscal 2026, we expect to deliver double-digit adjusted EPS growth compared to the prior year. The expected growth in earnings and cash flow enable us to continue investing in our businesses and to increase our return of capital to shareholders. We are targeting $7 billion in share repurchases in 2026, double the $3.5 billion we repurchased in fiscal 2025. We're also pleased to announce that the Board has declared a cash dividend of $1.50 per share, a 50% increase over the dollar paid to shareholders in fiscal 2025. Before we take your questions, I'd like to touch on a few highlights from the quarter. First, our film studios. This summer's box office once again demonstrated the global and cross-generational appeal of our storytelling and IP. To date, Disney's live-action Lilo & Stitch remains the highest-grossing Hollywood film at the global box office this calendar year, and its success has extended across our interconnected businesses and consumer touchpoints. The film achieved 14.3 million views during its first five days on Disney+, becoming the second-biggest Disney live-action premiere on the platform ever. Retail sales for Stitch from our consumer products business also continues to grow, eclipsing $4 billion in fiscal 2025. The popularity of this global phenomenon underscores the franchise's enduring strength and the effectiveness of our strategy to invest in popular stories and characters. Over the past two years, our studios have delivered four global franchise hits that have earned more than $1 billion each. While no other Hollywood studio has achieved a single one during the same period. Additionally, with a strong opening of Predator Badlands, the biggest opening in the franchise's nearly 40-year history, the Walt Disney Studios has now crossed the $4 billion mark at the global box office for the fourth consecutive year. Heading into the holiday season, we're excited to bring audiences Zootopia 2 and Avatar Fire and Ash. Looking ahead, next year's slate includes numerous highly anticipated titles, such as The Devil Wears Prada 2, The Mandalorian and Grogu, Toy Story 5, the live-action Moana, and Avengers Doomsday. We saw strong viewership of our television content in Q4, fueled by series such as Alien Earth, FX's biggest premiere ever on Disney+, and Hulu, Season 2 of High Potential, the number one original broadcast series across all platforms among adults 18 to 49. The Korean global hit Tempest and season 34 of ABC's Dancing with the Stars, which made history as the only fall show to increase its overall audience for six straight weeks following a season premiere, something that's never been achieved by any show since Nielsen began electronic measurement in 1991. And we have more highly anticipated titles to come over the next few months, including new seasons of Paradise, The Secret Lives of Mormon Wives, Percy Jackson and the Olympians, American Idol, and the revival of the comedy Scrubs. We're also excited to bring viewers Taylor Swift's End of an Era docuseries, as well as the concert film Taylor Swift, The Era's Tour, The Final Show. In our entertainment segment, our streaming business had another quarter of profit growth, with operating income up 39% in Q4. For the full year, we hit $1.3 billion in operating income, up $1.2 billion from last year, and $300 million ahead of our original guidance. That is a significant achievement when you consider that just three years ago, our DTC business was running a $4 billion operating loss. As we continue to build DTC into a core growth engine, we're rolling out a more unified app experience to better serve our consumers and unlock new value. In October, Hulu became our global general entertainment brand, and we continue to work to consolidate all of our entertainment content domestically within a single app, which will simplify the user experience, highlight the full value of our bundles, and unlock global marketing efforts. We're also expanding our international reach by investing strategically in our own originals and working with local studios to license content that brings more high-quality local storytelling to the platform. We're taking a disciplined approach to the markets we are prioritizing, and we have confidence in our long-term strategy. Turning to sports, we ushered in a new era with the launch of ESPN's full direct-to-consumer service and enhanced ESPN app. making ESPN's full suite of networks and services available directly for the first time. We're thrilled by the response from fans so far, especially to the upgraded ESPN app, which now includes features such as MultiView, Sports Center for You, Catch Up to Live, and tools like Live Game Stats, Betting, Fantasy Sports, and Commerce Integrations. Viewership of our industry-leading portfolio of live sports also remains robust, with ratings across ESPN networks, including ESPN on ABC, finishing the quarter up 25% over the prior year quarter. In our experiences segment, we delivered a record operating income for both Q4 and the full year, with operating income up 13% for the fourth quarter compared to the prior year, and up 8% for the full year. We're looking forward to two new cruise ships joining our fleet in the coming months, the Disney Destiny, which sets sail next week, and the Disney Adventure, which will become our first ship home-ported in Asia when it launches in March. This will bring our fleet to a total of eight cruise ships, and in the spring, we're excited to open World of Frozen at Disneyland Paris. With expansion projects underway at every one of our theme parks, five additional cruise ships scheduled for launch beyond fiscal 26, In a new theme park planned for Abu Dhabi, the strategic investments we are making now will help ensure our offerings remain best in class and appeal to audiences worldwide well into the future. Overall, this quarter caps another strong fiscal year for the company. We continue to execute across our strategic priorities as we build for the future, deliver the very best in entertainment, and create value for shareholders. And with that, Hugh and I will be happy to take your questions.