Disney Earnings Plunge 63% As Theme Parks Close

Walt Disney reported earnings of 60 cents a share, below the consensus estimate of 86-cent and down 63% from the $1.61 the company earned a year ago. Pretax income cratered 85% from $7.2BN to Just $1.1BN. The huge income and EPS hit took place despite a 21% jump in revenue, which rose from $14.9BN a year ago to $18.0BN, beating expectations of $17.6BN. The big culprit for the drop, according to Disney, was theme park revenue which fell $1 billion due to Covid-19, while the overall hit to profits from the virus was $1.4 billion.

“While the COVID-19 pandemic has had an appreciable financial impact on a number of our businesses, we are confident in our ability to withstand this disruption and emerge from it in a strong position,” said Bob Chapek, Chief Executive Officer, The Walt Disney Company. “Disney has repeatedly shown that it is exceptionally resilient, bolstered by the quality of our storytelling and the strong affinity consumers have for our brands, which is evident in the extraordinary response to Disney+ since its launch last November.”

The biggest loser was the theme parks, some of which have been closed since January. Operating income there fell to $639 million, from $1.5 billion in the same period the year before, while revenue slumped from $6.2BN to $5.5BN.

Profits at the company’s film and TV units were also crimped due to lower ad revenue and movie write-offs.

Some more details from the just concluded quarter from Bloomberg, first on the top-line:

  • 2Q Cable Networks revenue $4.4 billion, +19% y/y, estimate $4.35 billion
  • 2Q media networks revenue $7.3 billion, +32% y/y, estimate $6.58 billion
  • 2Q studio entertainment revenue $2.5 billion, +19% y/y, estimate $2.37 billion
  • 2Q parks, experiences & consumer products revenue $5.54 billion, -10% y/y, estimate $5.42 billion
  • 2Q broadcasting revenue $2.8 billion, +54% y/y, estimate $2.27 billion
  • 2Q direct-to-consumer & international rev $4.1 billion vs. $955 million y/y, estimate $4.40 billion

… And for operating profit:

  • 2Q Cable Networks operating profit $1.8 billion, +2.5% y/y, estimate $1.93 billion
  • 2Q media networks operating income $2.4 billion, +9.8% y/y, estimate $2.53 billion
  • 2Q studio entertainment operating income $466 million, -13% y/y
  • 2Q parks, experiences & consumer products operating income $639 million, -58% y/y, estimate $696.6 million
  • 2Q broadcasting oper income $397 million, +61% y/y
  • 2Q direct-to-consumer & international operating loss $812 million, +17% q/q

Park plunge aside, Disney’s Cable Networks revenues for the quarter increased 17% to $4.4 billion and operating income increased 1% to $1.8 billion. The increase in operating income was due to the consolidation of TFCF businesses (primarily the FX and National Geographic networks), partially offset by a decrease at ESPN, and to a lesser extent, the Domestic Disney Channels and Freeform.

And speaking of the increasingly controversial EPSN, the decrease in revenue there was due to higher programming and production costs and lower advertising revenue, partially offset by higher affiliate revenue. Higher programming and production costs were driven by rate increases for College Football Playoffs and other college sports as well as costs for the ACC Network, which launched in August 2019. But the punchline is that the decrease in advertising revenue was due to lower average viewership, partially offset by higher rates. Lower average viewership was driven by the cancellation of major sporting events beginning in mid-March as a result of COVID-19.

Additionally, looking at ESPN+, Disney reported 7.9MM subs, up from 2.2MM, but the average monthly revenue per paid subscriber for ESPN+ decreased from $5.13 to $4.24 due to the introduction of a bundled subscription package of Disney+, ESPN+ and Hulu beginning in November 2019. The bundled offering has a lower retail price than the aggregate standalone retail prices of the individual services, which suggests that standalone growth has collapsed.

Elsewhere, Disney laid out the following Coronavirus impact as follows:

  • Total Covid-19 Impact From Cont Ops Pre Tax up to $1.4B
  • Covid-19 Most Significant Impact at Parks, Experiences
  • Covid-19 Impact at Parks, Experiences About $1.0B
  • 2Q ESPN+ Subscribers 7.9M, +20% Q/Q
  • 2Q Total Hulu Subscribers 32.1M, +5.6% Q/Q

In kneejerk response, DIS stock briefly dropped below $100 before stabilizing roughly unchanged, after having tumbled from $115 in the middle of last week following several notable downgrades.

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