Disney theme parks take a $1 billion hit amid coronavirus closures

Tribune Content Agency

Walt Disney Co., the world’s largest entertainment company, reported quarterly earnings for the first time since the coronavirus crisis shut down domestic theme parks and brought Hollywood to a standstill. As expected, it wasn’t pretty.

The Burbank giant’s profit dropped dramatically during the three months that ended in March, the month that fears of the COVID-19 pandemic shuttered Disneyland and Walt Disney World, halted film and TV production and suspended live sports indefinitely.

Earnings for the second fiscal quarter fell 63% from the same period a year ago to 60 cents a share, the company said Tuesday. Analysts polled by FactSet on average expected 89 cents a share. Net income fell a staggering 91% to $475 million.

Profits were severely affected at the company’s key parks, experiences and products segment. Disney estimated that the segment missed out on $1 billion in operating income due to the closures during the quarter.

Revenue was $18 billion, up 21% from a year ago thanks to the inclusion of sales from 21st Century Fox businesses that Disney acquired last year. Analysts had estimated $17.8 billion in revenue.

Disney closed its domestic parks and Disneyland Paris in mid-March amid the growing public health concerns surrounding the novel coronavirus. The crisis has damaged essentially the entire media business, but Disney in particular has suffered because of its reliance on in-person experiences such as parks, movie theaters, cruise ships and retail stores.

The situation came just as Disney was transitioning to new leadership, with Bob Iger stepping aside from the chief executive role to make way for his successor Bob Chapek, who previously ran the parks and resorts empire.

To weather the shutdowns, Disney has added billions of dollars to its debt load, slashed executive salaries and furloughed more than 100,000 of its 223,000 employees. The furloughs have hit tens of thousands of parks and cruise workers (known as “cast members” in Disney parlance), as well as employees at the company’s movie studio division. Release of films such as “Mulan” and “Black Widow” has been delayed.

Disney stock rose 1.5% in after-hours trading on Wall Street. The stock closed at $101.06 on Tuesday, down 2%.

Lightshed Partners analyst Rich Greenfield, a frequent critic of the company, described the coronavirus-driven turnaround in stark terms in a blog post for clients.

“Disney has gone from being on top of the world a la Lion King, to feeling like Eeyore stuck in the middle of a perfect storm with no end in sight,” Greenfield wrote.

Parks, experiences and products — normally the company’s biggest segment in terms of sales — saw revenue fall 10% to $5.54 billion in the quarter that ended March 28. Operating income was $639 million, down 58% from the prior-year quarter.

Disney’s parks in Shanghai and Hong Kong have been closed since January, when the outbreak was spreading in China. Tokyo Disneyland has been shuttered since late February to help slow the spread of infections. Shanghai Disneyland is likely to be the first of the company’s parks to reopen, with limited attendance, as other entertainment venues resume business in the country with strict safety protocols.

The company’s film segment generated $466 million in operating income, down 8% year over year. Revenue was $2.54 billion, up 18%.

The theatrical run of Disney’s latest release, Pixar’s “Onward,” was cut short because of theater closures. The movie was quickly released on video-on-demand sites and, later, on Disney’s streaming service Disney+. Disney’s next release is “Mulan,” a live-action remake that was moved to a July 24 debut after its original March 27 premiere was canceled. U.S. cinema chains are hoping to begin reopening in mid-June or early July.

Disney’s TV segment, which includes ABC, ESPN and other networks, was the only area in which profits grew year over year. Operating income was $2.38 billion, up 7%, thanks to an increase in revenue from the inclusion of Fox cable networks.

ESPN has been pummeled by the shutdown, losing much of its main draw: live sports. The lack of sports coverage compounds ESPN’s ongoing problem of cord-cutting as consumers increasingly eschew pricey pay-TV bundles. However, the network currently has a ratings hit in “The Last Dance,” a 10-part documentary about NBA star Michael Jordan’s career with the Chicago Bulls.

On the bright side, Disney+ has proved a popular refuge for sequestered families under stay-at-home orders. The app, which launched in November with shows such as “The Mandalorian,” recently hit 50 million global subscribers after debuting in Western Europe and India. About 8 million of those subscribers are in India, where Disney has bundled the new streamer with the country’s service, Hotstar.

Disney’s direct-to-consumer and international segment, composed of Disney+, Hulu and other units, continues to lose money as the company invests in growing its digital prowess to compete with Netflix and others.

The direct-to-consumer businesses lost $812 million, more than double the loss from the same quarter last year. Streaming and international revenue grew surged to $4.12 billion, compared with $1.15 billion a year earlier.


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