The latest earnings report from Walt Disney Co DIS has produced mixed results for investors. While the company’s earnings per share of $0.93 were in line with consensus estimates, they fell short of expectations as Disney has a track record of beating earnings estimates. However, Disney’s $21.82 billion in revenue beat the consensus of $21.79 billion and posted a 13% year-over-year increase, largely due to a notable 17% increase in revenue in the parks, experiences segment and products. The impressive performance of this segment can be attributed to the declining pandemic, which gave a significant boost to the company’s revenue growth.

Additionally, Disney’s focus on free cash flow (FCF) appears to be paying off, as evidenced by a significant increase in FCF from $686 million to $1,987 million. However, it’s important to note that the parking segment is primarily responsible for this positive trend: it’s not the best place to be ahead of a potential economic downturn.

Despite an upswing in Disney’s parks business and healthy revenue growth, the company experienced a decline in profitability, with the segment’s operating profit falling 11% year over year to just $3.3 billion. This decline is particularly worrying for investors since operating leverage isn’t currently in Disney’s favour. The decline in profitability is largely due to Disney’s media and entertainment business, which saw its operating income fall nearly 50%. On the other hand, Disney’s parks business posted an impressive profit increase of more than 20%. While this segment remains a significant earnings driver, it’s not substantial enough to fully offset the headwinds the media and entertainment business is facing.

This trend is nothing new and was also seen in Disney’s first quarter, where park profits rose but media and entertainment saw lower profits. Although Disney’s sales have been growing well, the company’s earnings performance has been weak due to significant margin erosion over the past few years…