Disney's Income Falls as Coronavirus Takes Hold--Update
May 05 2020 - 05:15PM
Dow Jones News
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.
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