By Erich Schwartzel 

Walt Disney Co. on Tuesday laid bare for investors just how badly the company has been ravaged by the novel coronavirus that has shut down its film and TV productions and closed its theme parks around the world.

The world's largest entertainment company said it lost $1.4 billion due to the pandemic in the three months ended March 28.

Overall operating income for the company fell 37% to $2.4 billion. Revenue for the quarter rose 21% to $18 billion.

The ramifications of the pandemic will likely be even more pronounced in the current quarter, since only the final few weeks of the company's second fiscal quarter were hit by widespread shutdowns beyond those that started earlier in Asia. Analysts have downgraded Disney stock, eyeing a future defined by the highly contagious virus, even as stay-at-home orders are lifted and businesses reopen.

In the quarter reported Tuesday, the pandemic's primary impact was on the theme-parks division, since international operations like Shanghai Disney Resort closed before the mid-March closures of Disneyland and Walt Disney World in the U.S.

Operating income at the division that includes Disney parks fell 58% in the quarter to $639 million. Revenue fell 10% to $5.5 billion.

Disney said it estimates the coronavirus eliminated about $1 billion in operating income for the division in the quarter.

Disney's parks division had once been among its fastest-growing, and the company said Tuesday that guest spending at its domestic parks was up in the quarter prior to the closures. They have since been shut down for the foreseeable future, presenting a huge economic drain on the company's finances.

Other divisions posting year-over-year declines in operating income included studio entertainment, the division that released movies such as Pixar Animation's "Onward" that were forced out of theaters as exhibitors closed.

Studio entertainment revenue rose 18% to $2.5 billion, but operating income fell 8% to $466 million.

The division that includes the Disney+ streaming service, direct-to-consumer and international division operations posted revenue of $4.1 billion in a quarter that registered a significant boost in subscribers.

But Disney is still spending significantly on production and marketing the service, and consolidation in the division of its Hulu holding led to an operating loss at the division of $812 million. Disney controls Hulu following its $71.3 billion acquisition of the entertainment assets of 21st Century Fox.

The coronavirus pandemic and the economic shutdown it has prompted have exposed a central vulnerability to Disney's once-bulletproof business plan. Unlike conglomerates that encompass various holdings without much logical connection to one another, Disney is a franchise machine, capable of absorbing a set of characters like the Marvel Studios superheroes or the Star Wars universe and using them to sell movie tickets, action figures, streaming-service subscriptions and theme-park tickets.

But the coronavirus has caused practically every part of that machine to grind to a halt. The close coordination that made for such efficient use of characters and storylines across different parts of Disney has now led to a domino-like cascade of problems throughout the company's different divisions.

The company has raced to cut costs, shaving executive salaries and furloughing more than 100,000 workers.

For Chief Executive Bob Chapek, it has been a baptism by fire. He was named CEO in late February, after running the company's parks and resorts division for about five years, generating routinely strong earnings via a combination of cost-cutting and record-setting attendance at the parks. Robert Iger, who had been CEO for more than 14 years and delayed his retirement several times, was named executive chairman.

Disney shares have fallen more than 20% from six months ago, erasing months of steady gains buoyed by Mr. Iger's bold bet to operate three separate streaming services: Disney+, ESPN+ and Hulu.

Disney+ has been a rare bright spot for the company since the pandemic led to stay-at-home orders around the world. The company said last month it had surpassed 50 million subscribers, up from the nearly 29 million it reported during its last quarterly earnings call.

Movie theaters have opened in only a handful of communities, and no major Disney title is scheduled for release until a live-action update of "Mulan" hits theaters in late July, after being postponed from late March. Disneyland and Walt Disney World are expected to remain closed for the foreseeable future, and workers say they expect the company will limit capacity upon reopening.

Write to Erich Schwartzel at erich.schwartzel@wsj.com

 

(END) Dow Jones Newswires

May 05, 2020 17:00 ET (21:00 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
Walt Disney (NYSE:DIS)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Walt Disney Charts.
Walt Disney (NYSE:DIS)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Walt Disney Charts.