Walt Disney Co. wrote off unreleased animated movies last quarter, a stumble that marred the entertainment giant’s record-breaking summer box-office performance and crimped its latest earnings.

A new “Avengers” film and “Incredibles 2,” both summer releases, were among the industry’s biggest hits ever. But they weren’t enough to overcome the costs of the unidentified projects that Disney abandoned, resulting in third-quarter earnings that missed analysts’ estimates.

Disney is in the process of acquiring 21st Century Fox Inc.’s entertainment assets in a $71 billion deal -- seeking movie and TV properties that it can turn into megahits like its Marvel, Star Wars and Pixar films. The company has launched an ESPN streaming service and plans a second built around films and TV to serve growing legions of viewers watching online.

Disney leads the domestic box office this year -- with 35 percent of the market -- and stands to expand that edge with the Fox purchase. But it has also had misfires. In June, the company closed its Disneytoon Studios, its low-budget animation division, leading to job losses.

Shares of Disney fell as much as 3.2 percent to $112.85 in extended trading. The stock was up 8.4 percent so far in 2018 at Tuesday’s close, following a couple years of underperformance. Management is expected to speak to investors on a conference call that begins at 4:30 p.m. New York time Tuesday.

Movie Hits

Profit at the film division rose to $708 million on the strength of the Burbank, California-based company’s big summer releases. “Avengers: Infinity War” has taken in more than $2 billion worldwide to become the fourth highest-grossing film in history, while “Incredibles 2” topped $1 billion in ticket sales globally and ranks as the biggest U.S. animated feature.

Profit at Disney’s biggest division -- TV operations that include ABC, ESPN and the Disney Channel -- fell 1 percent to $1.82 billion, the result of costs associated with the new sports streaming service.

While ESPN recorded higher profit, revenue was hurt by continued subscriber losses. Sales and earnings at ABC rose as the network boosted sales of programming to others.

Operating income at the parks division rose 15 percent to $1.34 billion. The unit, the largest theme-park operator in the world, has been a star performer in recent years, driven by new attractions and higher ticket prices. Domestic and international resorts, along with the cruises, contributed the improved results.

Profit from consumer products unit, a laggard recently, fell to $324 million, with licensing and store sales lower.

Quarterly Earnings

Earnings for the quarter ended June 30 rose to $1.87 a share, excluding some items, missing analysts’ estimates of $1.94. Revenue grew 7 percent to $15.2 billion, compared with the $15.4 billion projected by analysts.

Even as Fox prepares to sell most of its business to Disney, it’s bidding in a separate deal for Sky Plc. On Tuesday, the company filed paperwork with regulators in the U.K. formalizing its offer for the 61 percent of Sky it doesn’t already own. The company is competing with a higher bid from Comcast Corp., and if it ultimately wins the U.K. broadcaster will become part of Disney.

--With assistance from Anousha Sakoui.

To contact the reporter on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Rob Golum

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