by Ray Keating
May 5, 2020
In its second quarter 2020 earnings statement and related call today, The Walt Disney Company provided some interesting news, including a decline in earnings, halting its dividend during the first half of the year, subscriber gains at Disney+ and the announcement of Shanghai Disney re-opening on May 11.
Let’s dig into some of these items.
First, the company’s diluted earnings per share (EPS), excluding certain items affecting comparability, dropped by 63 percent in the second quarter compared to the same quarter last year ($0.60 versus $1.61). That also was a miss compared to market expectations – again $0.60 compared to expectations for $0.89.
Second, Disney announced that it was suspending its dividend for the first half of the year, and would make assessments on the future of the dividend in the next six months. In addition, Disney is reducing its capital expenditures to deal with the current crisis.
Third, Disney+ continues to gain subscribers, with the number of total subscribers climbing to 54.5 million as of May 4. That’s up from the 50 million-plus announced in early April.
Fourth, it was announced that Shanghai Disneyland would re-open on May 11. That will feature advance reservations (i.e., dated tickets), guest capacity and density controls, and meeting assorted health and safety guidelines, including masks being worn by both guests and employees. Specifically, the Shanghai park’s daily attendance would be limited, starting out, to 30 percent of the park’s typical daily attendance, according to government orders. That would mean 24,000 guests, given that daily attendance usually runs at 80,000. However, Disney CEO Bob Chapek noted that the park will open below what is allowed by the government to make sure all is running well, and attendance would build up over a few weeks to the government-allowed level.
Fifth, during the second quarter, the COVID-19 crisis cost the company $1.4 billion in operating income, with $1 billion of that attributed to the parks (i.e., “Parks, Experiences and Products”). In terms of further breaking down those numbers, this reflects the domestic parks being closed for two weeks out of the quarter (which ended at the close of March), yet the domestic parks accounted for roughly half of that $1 billion in lost income, with the other parks, the cruise line, and so on accounting for the other half. That breakdown obviously points to larger losses in income during the current quarter given that the domestic parks will be closed for much or all of the quarter.
Sixth, looking ahead at re-opening parks, Chapek noted that parks will only be opened once it is determined that they will make a positive net contribution to the company’s income. No guidance was offered on the opening of any of the parks other than Shanghai.
Seventh, it was confirmed that the Disney cruise line will be the last line of business to return. And while it was noted that the cruise line’s contribution to overall operating income is relatively small, its return on investment is high, and it ranks extremely high in terms of guest satisfaction and guests returning.
In the end, both Chapek and Disney Executive Chairman Bob Iger emphasized the company’s resiliency and ability to come back strong after the crisis. Iger noted that the company will get through this, “but it will take some time.” Disney’s stock price was down in after-hours trading.
Ray Keating is the editor, publisher and economist for DisneyBizJournal.com, and author of The Disney Planner 2020: The TO DO List Solution (now available at a deep discount) and the Pastor Stephen Grant novels. He can be contacted at firstname.lastname@example.org.
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