By Jeremy C. Owens, MarketWatch
“We are confident in our ability to weather this disruption,” said the new Disney CEO in his first earnings report.
Profit for Walt Disney Co. plunged more than 90% in the second quarter, an example of the drastic effects on society of the COVID-19 pandemic, which, according to executives, cost the media giant more than $ 1 billion. profit dollars only in its division theme parks.
Disney (DIS) announced second-quarter earnings of $ 460 million, or 26 cents per share, on sales of $ 18.01 billion, up from $ 14.9 billion in the quarter. previous year, which included just a few days of results from the acquisition of Disney for $ 71 billion. Fox assets (link). During the quarter, however, Disney reported more than $ 5 billion in profit from the acquisition of a controlling stake in Hulu.
After adjusting for restructuring and other effects, Disney reported earnings of 60 cents per share, down from $ 1.61 per share in the quarter last year. Analysts on average expected Disney to report adjusted earnings of 91 cents per share on sales of $ 18.06 billion, according to FactSet, but those numbers have been reduced in recent weeks as the coronavirus has spread around the world and Disney has closed its theme parks and ceased film production. In late January, analysts on average forecast adjusted earnings of $ 1.40 per share for revenue of $ 19.51 billion.
“Although the COVID-19 pandemic had a significant financial impact on a number of our activities, we are confident in our ability to withstand this disruption and emerge from it in a position of strength,” said Bob Chapek, who took over the general management. Robert Iger Disney during the quarter (link).
While Chapek is now president and CEO, Iger – who assumed the role of executive chairman – was the first to speak Tuesday afternoon at Disney’s conference call, and sounded a similar refrain of resilience and a future rebound.
“As someone who has been around for a while and who has run this business for really tough days in the past 15 years, including economic downturns, natural disasters and other unforeseen events, I have absolute confidence in our ability to get through this difficult time and recover successfully, “said Iger.
Disney executives, however, provided little clarity on the short-term financial effects, beyond the fact that the direct-to-consumer sales segment would experience operating losses of more than $ 1 billion in the third quarter. CFO Christine McCarthy said Disney would not pay the expected semi-annual dividend in July, which would have saved about $ 1.6 billion.
Disney shares fell 2.2% in the extended session on Tuesday. The stock has fallen more than 30% so far this year, the Dow Jones Industrial Average – which includes Disney as a component – has dropped 16.8%.
Disney has faced some of Wall Street’s biggest fears about its activities during the coronavirus crisis, as its largest units are focused on on-site interactions that were closed when orders for on-site shelters: parks themed and cruises, movies and live sports, for example.
Don’t miss: Disney + is perhaps the only advantage of Disney because the coronavirus strikes other companies (link)
“COVID-19 is particularly problematic for Disney,” wrote Rich Greenfield, analyst at Lightshed Partners, launching the title neutral April 15. Less than a month later, before the results on Tuesday morning, Greenfield downgraded this selling recommendation (link), writing, “The more we have learned in the past few weeks and thought about how we modeled 2021, we think that our estimates were still far too aggressive (and we were below everyone) ”.
Disney’s theme parks division, which typically jostles with the television network segment for its biggest money maker, recorded $ 5.54 billion in revenue, up from $ 6.17 billion a year ago. a year; analysts on average expected $ 5.75 billion. Chapek said on Tuesday’s conference call that Disney is planning to reopen Shanghai Disneyland in China on May 11 with new precautions – including attendance limits, masks and temperature controls – and that the company “is assessing a number of different scenarios ”for the reopening of other parks. .
“We estimate that the impact of COVID-19 on the operating profit of our Parks, Experiences and Products sector was approximately $ 1.0 billion, mainly due to the loss of revenue due to the closings,” said revealed Disney in its announcement. “In total, we estimate that the impact of COVID-19 on our current quarter revenues from continuing operations before income taxes in all of our businesses amounted to $ 1.4 billion. “
Television networks – including ESPN, which relies on live sports to generate large advertising revenues – reported sales of $ 7.26 billion, up from $ 5.53 billion a year ago; analysts were expecting an average of $ 6.6 billion. Disney is also considering the week of May 11 for the return of some ESPN studios, which “will extend their live and fast-paced studio programming to 11 hours a day each weekday.”
See also: These are the streaming services that are worth your money in May 2020 (link)
The relief valve was to be Disney’s latest offering: streaming services, which focus on the Disney + and Hulu offerings. Disney’s direct-to-consumer segment – which bundles Disney + and other streaming services with the results of the BAMTech acquisition and international operations – reported sales of $ 4.12 billion, against less than 1 billion a year ago. Analysts on average had forecast sales of $ 4.35 billion in the division, the only segment that has seen its estimates increase since late January.
Disney + was launched in November and surpassed 50 million paid subscribers in April (link) – a stronger start than expected even for a service that has raised expectations – but still has doubts.
“We still wonder if Disney + will experience high churn rates as some of the previous US promotions and discounts start to disappear, combined with the lack of complete original content on the service,” wrote Michael Nathanson, analyst at MoffettNathanson, downshifting the stock to neutral to buy Monday (link).
However, McCarthy noted that paid subscribers have increased nearly 10% since the figure of 50 million was released last month, declaring a new total of 54.5 million paid subscriptions, suggesting that it hasn’t had a lot of churn. The service was launched in Western Europe in late March, and Chapek detailed plans for further expansion during the conference call.
“Disney + will begin rolling out in Japan in June, followed by the Nordic countries, Belgium, Luxembourg and Portugal in September, and Latin America will follow by the end of the year,” he said.
The film studio segment, which suffered from delays in film premieres as well as in the production of future films, recorded revenues of $ 2.54 billion. This is up from $ 2.13 billion a year, but lower than analysts’ average estimate of $ 2.62 billion.
-Jeremy C. Owens; 415-439-6400; [email protected]
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