The Walt Disney Company 10-Qquarter ended 2025-12-27
Higher Entertainment content costs and weaker theatrical results outweighed parks and cruise gains; Fubo’s live-TV expansion added costs.
Filed 2026-02-02 06:44 ET
Key figures · Q1 FY2026 · period ended 2025-12-27
- Revenue$26.0BYoY +5.2%QoQ +15.7%
- Operating income— Not reported
- Net income$2.4BYoY −6.0%QoQ +82.9%
- Total assets$202.1BYoY +2.6%QoQ +2.3%
- Total debt$46.6BYoY +2.9%QoQ +11.0%
How total debt adds up Borrowings $35,821M + Current portion of borrowings $10,819M Total debt $46,640M Lines as the filer presents them on its balance sheet.
- Shareholders' equity$108.5B1YoY +6.4%QoQ −1.3%
- Tangible book value$24.3BYoY +33.2%QoQ −11.0%
Notes (1)
- Shareholders' equity: About the summary: The summary's $114B is total equity including noncontrolling interests; shareholders' equity of $108.48B excludes those interests.
How this filing reads
- Health−0.3Cash and $12.3B of unused facilities cushion $(2.28)B free cash flow and borrowings up $4.6B.
- Momentum−0.4Revenue rose 5%; segment income fell 9%, and diluted EPS declined to $1.34 from $1.40.
- Outlook0.0Management plans $24B content spending, $9B capex and $7B repurchases as distribution returns remain uncertain.
Executive Summary
Disney’s Q1 FY2026 revenue grew, but earnings fell as higher Entertainment content costs and weaker theatrical profitability outweighed growth at parks, resorts and cruises. Experiences remained the principal profit engine, while the Fubo consolidation expanded streaming distribution and added costs and a noncash tax charge. Operating cash flow fell sharply as Disney paid deferred taxes and increased content spending; capital expenditures, dividends and buybacks exceeded operating cash generation. For investors, the opportunity is to turn Disney’s expanded entertainment and sports distribution into profitable growth without allowing content costs, rights costs and investment commitments to outpace returns.
Key Financial Highlights
| Metric | Q1 FY2026 or 12/27/2025 balance | Investor interpretation |
|---|---|---|
| Revenue | $26.0B, +5% Y/Y | Growth did not translate into higher segment profit. |
| Segment operating income | $4.60B, −9% Y/Y | Experiences gains did not offset Entertainment weakness. |
| Net income; diluted EPS | $2.40B, −6% Y/Y; $1.34 vs $1.40 | A higher tax rate contributed to the decline. |
| Operating cash flow; capital expenditures; free cash flow | $735M vs $2.40B net income; $3.01B; $(2.28)B | Tax payments and investment drove the cash shortfall. |
| Total assets; total equity | $202B; $114B | Goodwill is a substantial component of the asset base. |
| Tangible common equity (net tangible assets) | $29.8B, calculated from total equity less goodwill and net intangibles | Shows the balance remaining after those assets are excluded. |
| Total borrowings | $46.6B, up from $42.0B at FY2025 year-end | Borrowing increased while cash generation weakened. |
- Revenue mix: Services contributed $23.2B and products $2.78B. Fubo added ≈$0.3B of revenue after its October consolidation, but also increased cost growth.
- Earnings quality: Operating cash flow fell from $3.21B, primarily because Disney paid U.S. federal and California taxes for earlier fiscal periods; higher Entertainment and Sports content spending also contributed. The 32.7% effective tax rate included a $307M noncash Fubo-related charge, which is not an operating improvement or deterioration.
- Capital return: Disney repurchased 18M shares for $2.00B and paid $2.65B in dividends. Shares outstanding net of treasury shares fell 15M, from 1.79B to 1.78B, after issuance; equity-based compensation expense was $332M.
- Investment and liquidity: Produced and licensed content spending rose to $6.06B from $5.47B. Goodwill was $74.7B, including a $1.46B increase from Fubo; Disney ended the quarter with $5.68B of cash and cash equivalents and $12.3B of unused committed bank facilities.
Business Developments
Entertainment revenue rose 7%, but operating income fell 35% to $1.10B. More theatrical activity and subscription revenue were outweighed by higher programming and production costs and weaker theatrical distribution results. Sports operating income fell 23% to $191M: advertising improved, but fewer subscribers, a temporary carriage suspension and rights costs pressured results.
Experiences operating income rose 6% to $3.31B on higher guest spending, attendance and cruise passenger days. That growth came with greater labor, infrastructure and fleet costs, and helps explain why Disney is directing substantial investment toward parks and cruises.
Disney combined certain Hulu Live TV assets with Fubo and took a 70% economic and voting interest, broadening its live-television distribution and advertising role. After quarter-end, ESPN acquired NFL Network and other specified NFL media assets in exchange for a 10% noncontrolling interest in ESPN; Disney’s effective ESPN interest became 72%. The deal adds NFL programming rights through 2033, but its returns will depend on monetizing the added sports inventory.
Risk Assessment
- Programming distribution: Certain distributor agreements expire in FY2026; the Q1 YouTube TV blackout demonstrates how renewal disputes can interrupt carriage and subscription revenue.
- Content and sports returns: Rising production and long-term sports-rights costs can outpace advertising, subscriptions and audiences; Entertainment and Sports profit declines show the near-term exposure.
- Cash demands: Negative free cash flow coincided with higher borrowings and substantial capital returns, increasing the importance of a recovery in operating cash generation despite unused credit capacity.
- Litigation and competition: Antitrust challenges involving bundling, carriage and Fubo control, alongside Disney+ securities litigation, create costs and outcomes Disney cannot yet reasonably quantify.
- Intellectual property and technology: Copyright expirations, piracy, generative-AI-related uncertainty and streaming patent claims could raise enforcement or licensing costs and constrain monetization.
- Seasonal disruption: Park weather events and sports work stoppages can have outsized effects when they occur during peak attendance or league seasons.
This 10-Q lists only the risk factors that changed since the annual report. Full list: the company's 10-Ks on SEC.
Strategic Outlook and Investor Actionables
Management expects ≈$24B of FY2026 content spending and ≈$9B of capital expenditures while targeting $7B of repurchases. The investment case rests on Experiences sustaining growth and expanded streaming and sports distribution earning returns that exceed their rising costs.
- Entertainment: Monitor operating income against programming and production costs; recovery would show that revenue growth is converting into profit.
- Cash conversion: Monitor operating cash flow against content spending and capital expenditures; improvement would reduce reliance on borrowing to fund investment and capital returns.
- Distribution: Monitor FY2026 carriage renewals and Sports subscription and affiliate fees; further blackouts or declines would weaken the sports-rights thesis.
Figures are computed from the filing's XBRL data; the summary and scores are written by an AI model reading the filing.
Model 005 · prompt 9e47f58d3c