Walt Disney blew past Wall Street estimates last quarter although it swung to red and revenue fell with Disneyland shuttered, and movie theaters in major markets dark. It’s the last showbiz giant to report financials in the latest earnings round and the most anticipated as its sprawling businesses touch most of media and entertainment for better or worse.
Total sales of $14.7 billion were down 23% from $19 billion the year earlier. Wall Street had anticipated revenue of $14.2 billion. Revenue at parks and studio entertainment fell by 61%, and 52% respectively.
Disney swung to a loss of $710 million from a profit of $771 million the year earlier. A diluted, adjusted per share loss for the three months ended in September of 20 cents was significantly narrower than the 70-cent loss anticipated. It compared with a profit of $1.07 the year earlier.
Disney stock popped in after-hours trading, up 6%. It had dipped at the close, ending the session off 1.7% at $135 in a down market.
The parks division took $2.4 billion “adverse impact” in the current quarter and a $6.9 billion hit for the full fiscal year on COVID-19 closures or reduced operating capacities, the company said.
In a sign of the ongoing economic uncertainty, Disney announced it will not declare a semi-annual cash dividend for the second half of fiscal 2020 “in light of the ongoing impact of COVID-19 and the company’s decision to prioritize investment in its direct-to-consumer initiatives.” It had also nixed the dividend payout in June — the first time it had done that in years.
“Even with the disruption caused by COVID-19, we’ve been able to effectively manage our
businesses while also taking bold, deliberate steps to position our company for greater long-term growth,” said CEO Bob Chapek. “The real bright spot has been our direct-to-consumer business, which is key to the future of our company.” Disney+ launched exactly a year ago today and had more than 73 million paid subscribers at the end of the quarter.
The company’s pivot to streaming and fast growth in Disney+ has kept the positive buzz going and the stock well afloat, buoyed recently by reports that a highly effective Pfizer vaccine may be FDA-approved before year end. That’s hopeful news for travel, parks, cruise lines, movie theaters and advertising and, combined with the company’s streaming muscle, pushed Disney stock to one of is best trading days ever early this week. The issue is if, and how, wildly spiking infection rates across the U.S. and globally will impact business.
“The shift to streaming was critical, but the prospect of successful streaming execution and a healthy parks and theatrical business is a powerful combination,” Alan Gould of Loop Capital said in recent note, reiterating a ‘buy’ rating on the stock. “We believe a strong Disney+ subscriber number will outweigh what will undoubtedly be an ugly quarter from both an operational and impairment perspective.”
Parks, Experiences and Products — which includes cruise lines and consumer products — saw revenue plunge 61% to $2.6 billion and operating income swing to a loss of $1.1 billion from a $2.5 billion profit.
Studio entertainment revenues dropped 52% to $1.6 billion with profit down 61% to $419 million on lower theatrical and home entertainment results. There were generally no significant worldwide theatrical releases in the quarter — with cinemas either closed or at reduced capacity — compared with The Lion King and Toy Story 4 last year. Naturally, marketing expenses were down. Home entertainment sales also fell on tough comps with the prior-year quarter that included Avengers: Endgame, Aladdin and Captain Marvel.
Direct-to-consumer and international revenue rose 41% to $4.9 billion as losses narrowed from $751 million to $580 million on improved results at Hulu and ESPN+, partially offset by higher costs at Disney+.
At cable networks, revenue firmed 11% to $4.7 billion, profit fell 7% to $1.2 billion on lower results for ESPN partly offset by increases at FX Networks and the domestic Disney Channels.
Broadcasting revenues few 10% to $2.5 billion and profit surged 47% to $553 million higher affiliate sales and lower network programming and production costs and marketing expenses. Ad revenue was flat from the prior-year quarter. Disney said lower average network viewership was offset by the benefit of an additional week in the current quarter, higher network rates and an increase in political advertising at its television stations.
The latest quarter is the last Disney’s fiscal year, one marked by enormous change including a new CEO – Bob Chapek announced just before COVID flattened the global and U.S. economy in March. Disney joined other entertainment giants in dramatically reorganizing and streamlining its entire media and entertainment footprint. Distribution and commercialization has been centralized into a single global unit called Media and Entertainment Distribution led by Kareem Daniel. Content creation was split into three groups, Studios, General Entertainment and Sports, overseen, respectively, by Alan Horn and Alan Bergman, Peter Rice and Jimmy Pitaro. The latest details were announced earlier this week.
On a post-earnings conference call, financial analysts pressed, among other things, for more clarity on the reorg. Chapek promised more detail on that, and just about every other question he fielded, at an investor day set for Dec. 10.
Furloughs and layoffs dogged the parks business with Disneyland still closed, despite Walt Disney World opening in July relatively successfully, as well as international parks. Disneyland in Hong Kong and Paris had to shut down again as COVID spiked. Hong Kong has opened again but Paris hasn’t as some Western European nations are back in lockdown. Disney earlier this month announced 28,000 layoffs at its U.S. parks division.