Disney Earnings Report and More: A Mixed Bag

 by Ray Keating

News/Analysis

DisneyBizJournal.com

August 9, 2023

 

In its third quarter earnings report today, Disney beat expectations on some measures, while missing on others. This came across as the definition of a “mixed bag.”

 

Two points beyond the actual earnings report warrant attention. On the earnings call, Kevin Lansberry, Disney interim CFO, reiterated that a recommendation would be made to the board by the end of this calendar year to reinstate a “modest” dividend. 

Also, Disney announced assorted streaming price increases. Those include commercial-free Disney+ going from $10.99 per month to $13.99; a 20 percent increase in Hulu without ads to $17.99; and the Disney bundle of Disney+ (no ads), Hulu (no ads) and ESPN+ (ads) increasing from $19.99 to $24.99. All three with ads will increase $2 per month to $14.99. These price increases will go into effect on October 12.

 

The Disney stock price immediately reacted positively in after-hours trading to these two announcements.

 

As for adjusted earnings per share for the quarter, Disney came in at $1.03, which beat market expectations of $0.95. However, it was down from $1.09 in the prior year quarter.

 

Regarding revenues, Disney earned $22.33 billion in the third quarter. That actually came up short of market expectations, which ran at about $22.5 billion. However, revenues were up by 4 percent compared to the same quarter last year.

 

Streaming

 

Streaming (or DTC) losses continued in the quarter, but the loss of $512 million was smaller than the market expectation of $759 million.

 

Disney+ subscriptions registered 146 million, which came in lower than the expected 151 million, and down from 157.8 million in the previous quarter. However, Disney+ Core (which excludes Disney+ Hotstar) subscriptions increased from 104.9 million to 105.7 million. ESPN+ and Hulu subscriptions were flat.

 

Streaming profitability continues to be expected by the end of fiscal year 2024. Iger pointed to a recent “reset” of the whole business “for sustained profitability.”

 

For good measure, Iger continued to make clear Disney’s enthusiasm regarding sports, noting once more that ESPN was destined to go fully streaming at some point. He said, “We believe in the power of sports.”

 

Parks

 

Strength in theme parks was noted for the international parks and in Disneyland. “Softer performance” was highlighted for Walt Disney World, though “well above pre-Covid levels,” according to Iger. He also mentioned strong demand for annual passes.

 

In the third quarter, the Parks, Experiences and Products division saw revenues increase 13 percent versus the same quarter last year, and operating income up by 11 percent.

 

Lansberry said the company expected some moderation of attendance at domestic parks in the near term. At the same time, though, Iger was very bullish on the company’s cruise line business.

 

Movies

 

Regarding the film business, Iger pointed to it as a key source of future growth (along with the parks and streaming). He was pleased with the results from Avatar: The Way of Water and Guardians of the Galaxy Vol. 3, but noted that other results were “disappointing,” and that was something “we don’t take lightly.” The Disney CEO emphasized a move to “better economics” on the studio front, including reducing costs per title.

 

Regarding overall cost-cutting efforts, Iger said that Disney was on track to exceed the goal of $5.5 billion in savings.

 

Iger assessed, “While there is still more to do, I’m incredibly confident in Disney’s long-term trajectory because of the work we’ve done, the team we now have in place, and because of Disney’s core foundation of creative excellence and popular brands and franchises.”

 

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Ray Keating is the editor, publisher and economist for DisneyBizJournal.com; and author of the Pastor Stephen Grant thrillers and mysteries, and the Alliance of Saint Michael novels; and assorted nonfiction books. Have Ray Keating speak your group, business, school, church, or organization. Email him at raykeating@keatingreports.com.

 

The views expressed here are his own – after all, no one else should be held responsible for this stuff, right? 

 

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What about Disney’s Dividend?

 by Ray Keating

Analysis

DisneyBizJournal.com

August 12, 2022

 

Earlier this week, the Walt Disney Company announced a strong earnings report. (See DisneyBizJournal’s report.) The market certainly liked it, as the stock price closed on Friday afternoon up 12 percent for the week.

If the company’s financial situation continues to improve, a question pops up: What about the Disney dividend?

 

Disney had paid a stock dividend for more than 40 years until it was suspended at the start of 2020. Before it was stopped, Disney was paying an $0.88 per share semi-annual dividend. According to The Motley Fool, Disney is one of only three stocks included in the Dow Jones Industrial Average that does not pay a dividend.

 

When the dividend ceased, the company offered the following statement: “The Walt Disney Company (NYSE: DIS) Board of Directors today announced that 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.” 

 

Notice that the statement didn’t focus exclusively on the pandemic, but also noted investments being made in its streaming services. Also, as stated on Disney’s earnings call this week, the company expects to see its Disney+ losses peaking in the current fiscal year.

 

Disney is pointing to streaming being profitable by 2024, with at least one analyst looking for Disney streaming to break even that year. Either way, that would be a major boost to the company’s overall bottom line.

 

Last August, Disney CFO Christine McCarthy said, “We don’t anticipate declaring a dividend or repurchasing shares until we return to a more normalized operating environment.” She also has said, “Longer-term, we do anticipate that both dividends and share repurchases will remain a part of our capital allocation strategy.”

 

As for the operating environment, the pandemic’s effects obviously are diminishing. However, uncertainty swirls regarding recession and inflation.

 

As the recession comes to an end and inflation retreats, then 2024 might be the time to be looking for a return of some kind of Disney dividend.

 

__________

 

Ray Keating is the editor, publisher and economist for DisneyBizJournal.com; and author of the Pastor Stephen Grant thrillers and mysteries, and the Alliance of Saint Michael novels; and assorted nonfiction books. Have Ray Keating speak your group, business, school, church, or organization. Email him at raykeating@keatingreports.com.

 

The views expressed here are his own – after all, no one else should be held responsible for this stuff, right? (Also, full disclosure: I own shares in Disney.)

 

Two great ways to order Cathedral: An Alliance of Saint Michael Novel, which is Ray’s sixteenth work of fiction, and the first in the Alliance of Saint Michael series. Signed paperbacks here and the Kindle edition here. 

 

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Disney Activist Investor Wants Disney to End Dividend, Invest in Disney+

 by Ray Keating

News

DisneyBizJournal.com

October 7, 2020

 

The Walt Disney Company announced in May that it was suspending its semiannual dividend, and said that it would revisit the issue in six months. Activist investor Dan Loeb wants that $3 billion dividend to end, and be reinvested in content for Disney+.

In a letter sent to Disney CEO Bob Chapek and the board today, Loeb argues that ending the dividend would allow Disney to double its budget for Disney+ original content, according to The Hollywood Reporter.

 

Loeb reportedly pointed out: “Beyond bringing additional subscribers onto the platform, increased velocity of dedicated content production will deliver several knock-on benefits spread across your existing base including elevated engagement, lower churn, and increased pricing power… [M]eaningfully accelerating DTC content spend will further broaden the divide between Disney and its traditional media peers — AT&T’s WarnerMedia, Discovery, ViacomCBS, Comcast’s NBCUniversal and Fox — none of which have the financial capabilities to execute such a bold plan… [W]ith Disney’s superior tentpole franchises and production capabilities, we believe that the company can exceed the subscriber base of the industry leader, Netflix, in just a few years.”

 

CNBC noted that Loeb also wrote: “The ability to drive subscriber growth, reduce churn, and increase pricing present the opportunity to create tens of billions of dollars in incremental value for Disney shareholders in short order, and hundreds of billions once the platform reaches larger scale.”

 

CNBC reported, “Shares [of Disney] have fallen about 6 percent in the past year as theme park and movie theater closures have hurt Disney’s operations. Netflix shares are up almost 95 percent over the same period.”

 

In terms of comparing dollars spent on content, CNBC also pointed out: “While Disney has been able to woo subscribers with its large catalog of movies, ‘Star Wars,’ and Marvel content, it hasn’t spent much on original programming. Netflix may spend more than $17 billion this year and more than $28 billion by 2028, according to BMO Capital Markets estimates.  Disney said last year it expected to spend about $1 billion on Disney+ original content in its fiscal year 2020 and just $2.5 billion by 2024. Some of that original content has further been delayed by pandemic quarantines, which have halted production.”

 

It will be interesting to see how Disney responds to Loeb given that Chapek was highly focused on Disney+ during the August earnings call.

 

Loeb’s Third Point Capital ranks as one of Disney’s largest shareholders. Disney’s full year and fourth quarter 2020 earnings call is set for November 12, which presumably will include a decision on the company dividend.

 

__________

 

Ray Keating is the editor, publisher and economist for DisneyBizJournal.com, and author of the Pastor Stephen Grant novels. He can be contacted at  raykeating@keatingreports.com.

 

Also, get the paperback or Kindle edition of Ray Keating’s new book Behind Enemy Lines: Conservative Communiques from Left-Wing New York.

 

Disney Earnings Decline, Halts Dividend, Experiences Disney+ Gains, and Announces Re-Opening for Shanghai Park

by Ray Keating

News/Analysis

DisneyBizJournal.com

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  raykeating@keatingreports.com.

Get the paperback or Kindle edition of Ray Keating’s new book Behind Enemy Lines: Conservative Communiques from Left-Wing New York.