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Walt Disney Co. profit dove more than 90% in the second quarter, an example of the drastic effects on the company from the COVID-19 pandemic, which executives said cost the media giant more than $1 billion in profit just in its theme-parks division.
Disney DIS, -2.05% reported fiscal second-quarter profit of $460 million, or 26 cents a share, on sales of $18.01 billion, up from $14.9 billion in the year-ago quarter, which included only a few days of results from Disney’s $71 billion acquisition of Fox assets. In that quarter, though, Disney reported profit of more than $5 billion, with a boost from the acquisition of a controlling interest in Hulu.
After adjusting for restructuring charges and other effects, Disney reported earnings of 60 cents a share, down from $1.61 a share in the year-ago quarter. Analysts on average expected Disney to report adjusted earnings of 91 cents a share on sales of $18.06 billion, according to FactSet, but those numbers have been slashed in recent weeks as the coronavirus has spread across the globe and Disney has closed its theme parks and ceased movie production. As of the end of January, analysts on average expected adjusted earnings of $1.40 a share on sales of $19.51 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, who took over as chief executive of Disney from Robert Iger during the quarter.
While Chapek now sits in the CEO chair, Iger — who has taken on the role of executive chairman— was the first to speak Tuesday afternoon on 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 led this company through some really tough days over the last 15 years, including economic downturns, natural disasters and other unforeseen events, I have absolute confidence in our ability to get through this challenging period and recover successfully,” Iger said.
Disney executives provided little clarity about near-term financial effects, though, beyond saying that the direct-to-consumer segment would record an operating loss of more than $1 billion in the third quarter. Chief Financial Officer Christine McCarthy said that Disney will not pay a semiannual dividend that would have been expected in July, saving approximately $1.6 billion.
Disney shares bounced between gains and losses of about 1% in after-hours trading immediately following release of the results, but fell to a decline of more than 2% during the conference call. Disney stock has declined more than 30% so far this year, as the Dow Jones Industrial Average DJIA, +0.56% — which counts Disney as a component — has declined 16.8%.
Disney has faced some of the biggest fears from Wall Street about its business during the coronavirus crisis, as its largest units are centered around on-premises interactions that have been shut down during shelter-in-place orders: Theme parks and cruise lines, movies and live sports, for example.
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“COVID-19 is uniquely problematic for Disney,” Lightshed Partners analyst Rich Greenfield wrote in initiating the stock at neutral on April 15. Less than a month later, ahead of earnings Tuesday morning, Greenfield downgraded that recommendation to sell, writing, “the more we have learned in the past few weeks and thought about how we modeled 2021, we believe our estimates were still far too aggressive (and we were below everyone else).”
Disney’s theme parks division, which typically jostles with the television networks segment for its biggest moneymaker, recorded $5.54 billion in revenue, down from $6.17 billion a year ago; analysts on average expected $5.75 billion. Chapek said in Tuesday’s conference call that Disney plans to reopen Shanghai Disneyland in China on May 11 with new precautions — including attendance limits, masks and temperature checks — and that the company is “evaluating a number of different scenarios” for reopening other parks.
“We estimate the COVID-19 impact on operating income at our Parks, Experiences and Products segment was approximately $1.0 billion primarily due to revenue lost as a result of the closures,” Disney disclosed in its announcement. “In total, we estimate that the COVID-19 impacts on our current quarter income from continuing operations before income taxes across all of our businesses was as much as $1.4 billion.”
The TV networks — including ESPN, which relies on live sports to make big ad revenue — reported sales of $7.26 billion, up from $5.53 billion a year ago; analysts on average expected $6.6 billion. Disney also is eyeing the week of May 11 for the return of some ESPN studio shows, which will “expand their live and quick turnaround studio programming to 11 straight hours each weekday.”
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The one relief valve was expected to be Disney’s newest offering: streaming services, which centers on the Disney+ and Hulu offerings. Disney’s direct-to-consumer segment — which bundles Disney+ and other streaming services with results from acquisition BAMTech and international operations — reported revenue of $4.12 billion, up from less than $1 billion a year ago. Analysts on average expected sales of $4.35 billion in that division, the only segment that saw estimates rise since the end of January.
Disney+ launched in November and passed 50 million paying subscribers in April — a stronger-than-expected start even for a service that provoked high expectations — but still has doubters.
“We still question whether Disney+ will see elevated levels of churn as some of the earlier U.S. promotions and discounts start to roll off combined with the lack of extensive original content on the service,” MoffettNathanson analyst Michael Nathanson wrote in downgrading the stock to neutral from buy Monday.
However, McCarthy noted that paying subscribers have increased nearly 10% since the 50 million figure was disclosed last month, declaring a new total of 54.5 million paid subscriptions that suggests it has not seen much churn. The service launched in Western Europe in late March, and Chapek detailed plans for more expansion in the conference call.
“Disney+ will begin rolling out in Japan in June, followed by the Nordics, Belgium, Luxembourg and Portugal in September and Latin America will follow toward the end of the year,” he said.
The movie-studio segment, which has been beset by delays in movie premieres as well as production of future films, reported revenue of $2.54 billion. That result is up from $2.13 billion a year, but lower than the average analyst estimate of $2.62 billion.
