Walt Disney Company reported its second quarter earnings for January through March and forward-looking forecast for Summer 2021 and beyond on an investor call held by CEO Bob Chapek. In this post, we’ll cover the good & bad of these results, with a focus on the Disney Parks, Experiences and Products segment, which includes Walt Disney World, Disneyland, Disneyland Paris, and Disney Cruise Line.
Before we get started, there was an interesting article in Variety yesterday that otherwise wouldn’t be covered here since it’s palace intrigue that mostly doesn’t concern the parks. However, it’s tangentially relevant here, and the release timing is likely not coincidental, so here it is: “Disney’s New World Order Leads to Confusion and Bruised Egos.”
While the emphasis placed on streaming might give theme park fans pause, that’s nothing we didn’t already know. Back when that reorganization happened, Disney explicitly said as much. If it wasn’t clear then, it certainly should’ve been at the Investor Day when dozens of big-budget shows were announced for Disney+ and Hulu.
The more interesting corporate drama revolves around Iger’s waning influence and Chapek’s assertion of authority. Everyone is becoming more and more deferential to Chapek,” according to one Disney executive who asked not to be identified. “Things are radically different than they were six months ago.”
It’s an interesting read, and I can’t help but wonder whether Iger regrets his decision to abruptly step down as CEO and effectively jump ship. It’s pretty clear his decision was motivated by the looming pandemic, and Disney wasn’t the Fortune 500 company to make a CEO change around that time. With the benefit of hindsight, that seems like a bad decision, but keep in mind that at the time, many feared the economic recovery would take years and some companies wouldn’t weather the storm.
Not only did the Walt Disney Company weather the storm, but it has emerged more valuable–and arguably stronger. On that note, let’s start with a look at the earnings results…
The second quarter of the Walt Disney Company’s fiscal year (the first quarter of the calendar year) should be the final one of negative results and abysmal year-over-year comparisons. The quarters to come should flip the script on that, showing marked improvements even as the phased reopening continues due to the closures providing the baseline.
To give a little context to the numbers, Disneyland and Disneyland Paris were closed for the quarter’s entirety and Disney Cruise Line was still nonoperational, Hong Kong Disneyland was open for 30 days of the quarter. Meanwhile, Walt Disney World Resort and Shanghai Disney Resort were both open for the entirety of the quarter, albeit at reduced capacity. (Tokyo Disney Resort is not owned in whole or in part by the Walt Disney Company.)
Forecasts called for revenue of $16 billion, but the actual total was $15.–that’s down as compared to $20.86 billion year over year, but still better than expected. Earnings per share (EPS) for the quarter increased 32% to $0.79 from $0.60 in the prior-year quarter; that beat expectations of $0.27.
Unsurprisingly, Disney+ was once again highlighted during the earnings call–but wasn’t the usual bright spot. Subscribers to Disney+ surged to 103.6 million subscribers by the end of the quarter, missing estimates for 110.3 million.
Disney’s direct-to-consumer streaming platforms lost $290 million in the quarter, which is not unexpected. Disney+ and other streaming services are currently in “user acquisition mode” and are not expected to be profitable until fiscal 2024, Disney’s management has said. During this quarter, two Marvel hits debuted on Disney+, WandaVision and The Falcon and the Winter Soldier.
Of particular interest to us is Parks, Experiences and Products (or Parks & Resorts). Revenues for the quarter decreased 44% to $3.2 billion, and segment operating results decreased $1.2 billion to a loss of $406 million. Lower operating results for the quarter were due to decreases at the theme parks, partially offset by growth at our consumer products business.
Breaking things down a bit further, the domestic parks lost $587 million and the international parks lost $380 million. That’s a total of $967 million, which is offset for the entire segment by consumer products $561 million profit. That’s still a loss, but it’s significantly better than any quarter since the closure began.
On a positive note, the Q1FY21 results document revealed that Disney spent $1 billion on capex in the parks in the second quarter of fiscal year 2021. That’s down from $1.99 billion spent in the previous year’s second quarter. However, it’s up from $760 million in the previous quarter. The breakdown is $656 million for the domestic parks and $355 million in the international parks.
For the former, this is likely in large part due to work at EPCOT kicking back into high gear. For the international parks, it’s probably the Zootopia expansion at Shanghai Disneyland, Arendelle: World of Frozen at Hong Kong Disneyland, and the expansion of Walt Disney Studios Park at Disneyland Paris.
While discussing the theme parks business, Disney CFO Christine McCarthy stated that at Walt Disney World, guest spending per capita again grew by double-digits versus the prior year.
She also stated that bookings for both Walt Disney World and Disneyland are strong, with higher demand as travel rebounds. In terms of the parks demand domestically, “intent to visit” at Walt Disney world is growing and is already flat with 2019, which is obviously the last normal year.
As with the previous two quarters, all theme parks that were open for a portion of the quarter covered their variable costs and made a net positive contribution towards fixed costs. Once again, this does not mean Walt Disney World or any other park is profitable. It simply means the parks are losing less money by being open than they would lose by being closed.
If the parks were profitable, they would’ve said “Walt Disney World is profitable” rather than the more arcane verbiage. It’s unlikely that Walt Disney World can achieve profitability without reopening more resorts (and achieving higher occupancy rates at those that are operational) and increasing the attendance cap above 35%.
Ultimately, the financial results were about on par with what was anticipated. Familiar beats were hit–the success of and enthusiasm for Disney+ and consumer products, with continued losses from the closure and scaled back operations of the theme parks. Some results were better than expected, others were worst. All things considered, no colossal surprises.
For most Walt Disney World fans, the earnings calls are less about the financials and more about the trajectory and future prospects of the parks. More of that was covered during the Q&A, which covered an increase of attendance limits and Disney’s reaction to today’s news from the CDC. More on that shortly…
What do you think of Walt Disney Company’s second quarter earnings and future forecast? Are you likewise optimistic for October 2021 and beyond, or think even that is premature? Are you worried about the future of Walt Disney World, Disneyland, or the company in general? Excited by Disney+ continuing to grow its subscriber base? Think things will continue improving in 2021? Do you agree or disagree with our assessment? Any questions we can help you answer? Hearing your feedback–even when you disagree with us–is both interesting to us and helpful to other readers, so please share your thoughts below in the comments!