Disney Quarterly Earnings: Parks Lose $2 Billion, WDW Attendance Down & More
Walt Disney Company reported its third quarter earnings for April through June and forward-looking forecast for 2020 on an investor call held by CEO Bob Chapek. In this post, we’ll cover the good & bad of these results, plus updates on the future of Walt Disney World and beyond.
The last quarter was a perfect storm for the Walt Disney Company. The only theme parks that were open at all during the third quarter were Shanghai Disneyland and Hong Kong Disneyland, and as minority owners in both, they’re not exactly Disney’s cash cows. Beyond that, film releases were delayed, production was shuttered, there were no sports for ESPN to broadcast, and advertising budgets were slashed. Aside from Disney+, pretty much every aspect of Disney’s business was negatively impacted.
Consequently, analysts were predicting the worst for the Walt Disney Company in the third quarter of 2020. Forecasts called for millions in losses (potentially a $2 billion loss from the Parks, Resorts & Experiences division alone) as compared to $4.6 billion in profit during last year’s third quarter. Wall Street had already priced these losses into Disney’s stock, with the real questions being just how bad the damage was, whether there were any unexpected bright spots, and Disney’s forward-looking expectations for the fourth quarter and 2021…
Let’s start with a look the Walt Disney Company’s fiscal third quarter 2020 financial results. In some ways, this was worse than expected–and our expectations were really low.
Forecasts called for revenue of $12.39 billion, but the actual total was $11.78 billion–down 42% year over year. Despite this, $DIS was up in after hours trading as soon as the results were released, so clearly Wall Street was pleasantly surprised…
Disney+ was an expected bright spot, but even that fell short of subscriber projections hitting 57.5 million as compared to the forecast 59.4 million. However, analysts have adjusted their expectations upwards for Disney+ after its meteoric success. During the call, Chapek announced that Disney+ has hit 60.5 million subscribers as of August 2020.
It’s worth noting here that Hamilton didn’t debut until July 4, just missing the last quarter. Regardless of expectations, the Disney+ streaming service is doing far better than other newcomers like Apple TV+ and HBO Max, both of which are off to very slow starts.
Also announced during the call is that Mulan will be available to Disney+ subscribers as a premium video on demand release debuting September 4, 2020 for an additional $29.99 upcharge. Mulan will also be released in select theaters, although no additional details were provided regarding that.
Mulan is Disney’s biggest foray into PVOD and Disney made clear that this is a one-off and driven by the uncertainty of its release. Onward had its theatrical run shortened and Artemis Fowl was released directly to Disney+, but those obviously aren’t the same. Bob Chapek also announced plans to launch yet another streaming service in 2021 under the Star brand.
Of particular interest for us is Parks, Experiences and Products (or Parks & Resorts). Disney estimates that the total net adverse impact on that segment’s operating income for the third quarter was approximately $3.5 billion due to revenue lost as a result of the closures–that’s a loss of roughly $40 million per day. Segment operating results decreased $3.7 billion to a loss of $2.0 billion.
Interestingly, capital expenditures were $1.86 billion in the third quarter, down from $2.49 billion year over year. We didn’t expect CapEx to plummet to zero, but this number was still higher than expected. Disney is a slow turning ship, so these numbers will still probably continue to drop, but hopefully that still bodes well for ongoing projects.
The losses in the theme park segment were partially offset by media networks and other divisions, but it was still a rough quarter for the Walt Disney Company. In total, the net adverse impact on operating income across all business units was approximately $2.9 billion. One minor positive note is that earnings per share were $.08 for the quarter. That’s a decrease of 94% from $1.34 in the prior-year quarter, but it’s still in the positives.
Another big positive that caused us to breathe a sigh of relief is that Disney has $23 billion in cash. That number is actually up significantly year over year. In fact, just at the end of the last quarter, the company only had $14.3 billion in cash on hand. Following that, Disney raised another $11 billion in new debt offerings to weather the current crisis. Obviously, more debt isn’t good, but the cash puts Disney in a good position to weather the storm.
On the call, Disney indicated that Walt Disney World is already covering its variable costs and making a positive net contribution towards fixed costs. Note that this doesn’t mean that Walt Disney World is profitable–it means the parks are losing less money by being open than they would lose by being closed.
Nevertheless, Walt Disney World’s results are below expectations, which the company attributes to the spike in Florida’s cases. Chapek stated that cancellations have been higher than anticipated and utilization of the parks has been lower than expected. Long distance travelers are making up a lower percentage of guests than expected (~50%) whereas Floridians are making up a higher percentage (~50%) of all guests in the parks on any given day.
At the end of the question and answer portion, Walt Disney World attendance once again came up with a question about resort occupancy, booking numbers, and guest spending. Disney stated that per guest spending is up (we call that “the eBay pirate effect”) but declined to provide an answer on the hotel inquiries, saying that the occupancy numbers were meaningless since so many resorts are not currently open.
Independent of this, we know that occupancy rates are way down (which is likely why this question was dodged). Even without that knowledge, you could surmise that more guests from in-state and fewer from out of state means lower numbers for the hotels. Even those numbers don’t tell the full story, as Disney Vacation Club is buoying the out of state percentage as DVC members are backed into a corner with the ‘use it or lose it’ nature of membership.
It’s good news in the short term that Walt Disney World being open is making a net positive contribution, but that’s still not a sustainable long-term position. This will improve as consumer confidence bounces back and willingness to travel increases, but that will take years to fully recover. In the short term, it’s all but inevitable that Walt Disney World will follow Universal and SeaWorld in announcing layoffs.
Disney didn’t broach the topic of discounting on the call, which is one way to entice out of state guests to return to Walt Disney World. As we’ve said before, our assumption is that both deals and out of state marketing will return as soon as Florida’s numbers improve to the point where it’s not a “bad look” or PR decision for Disney to actively lure guests to a hotspot.
Additionally, Disney noted on the call that the company is anticipating CapEx to be $700 million lower than previously forecast, which is due to lower investment in the domestic parks.
As noted above, we’re already starting to see this, but it’s not as pronounced as anticipated. Keep in mind that there were CapEx costs for Star Wars: Galaxy’s Edge last year, and Disney has consistently stated that the company was aiming for lower CapEx after that project was finished. Between that and the pausing of all construction projects at Walt Disney World and Disneyland for several months (thus deferring some of those costs), this doesn’t seem as bad as it could be. Time will tell, though.
Ultimately, we went into Disney’s earnings call knowing it would be a bloodbath–unquestionably the company’s single worst quarter ever–and the results were about on par with what we anticipated. Some results were better than expected, others were worst. All things considered, no colossal surprises. Given that we were dreading this call and fearing the worst, “no colossal surprises” is a pretty positive result.
There were also plenty of “optimistic nuggets.” Disney has a lot of cash on hand ($23 billion!!!), and is clearly positioned to weather the storm, even if the situation further deteriorates. Even with abysmal attendance, Walt Disney World is making a positive net contribution towards fixed costs, which should forestall further significant operational cuts. Disney+ is still going strong. Given all of this plus Disney’s resilience and brand affinity among consumers, we definitely left the call feeling fairly reassured. It should all be uphill from here!
Planning a Walt Disney World trip? Learn about hotels on our Walt Disney World Hotels Reviews page. For where to eat, read our Walt Disney World Restaurant Reviews. To save money on tickets or determine which type to buy, read our Tips for Saving Money on Walt Disney World Tickets post. Our What to Pack for Disney Trips post takes a unique look at clever items to take. For what to do and when to do it, our Walt Disney World Ride Guides will help. For comprehensive advice, the best place to start is our Walt Disney World Trip Planning Guide for everything you need to know!
What do you think of Walt Disney Company’s third quarter earnings and future forecast for the last quarter of 2020 and beyond? Are you worried about the future of Walt Disney World, Disneyland, or the company in general? Think things will turn around for the fourth quarter or 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!
Do you think Disney will offer any discounts on their gift cards to offset losses from this year? Specifically for their vacations. Not sure if they even offer a GC just for their vacations, but seems like a good idea to me 🙂
Do you think Disney will continue to offer some sort of discounts at WDW?
I believe if Walt Disney was alive today this would not be happening the price of tickets is outrageous. It was not about money for him it was about family and enjoying the park he created. But soon as his sons took over all prices started to go up and up and up. Now it’s all about money . Walt would never have done this.
I have zero issues with the prices as they’ve typically put out a very good product, HOWEVER, in recent years the park experience is getting less and less, and as a guest, I am able to accomplish fewer and fewer things and that is my issue. The fast pass+ system is a disaster and they need to go back to the old system. I used to go and be able to ride countless rides using the previous system, now I’m lucky to get to ride 3 or 4 main attractions. They’re catering to first time visitors instead of the returning guests. It’s a shame.
Walt Disney was a Capitalist. He would be looking to provide great entertainment for families, but if it didn’t make him money, it wouldn’t happen. He had no sons, just a son-in-law who was married to his daughter Diane Disney (Miller). His nephew was the Disney behind it all after Walt and his brother both died.
Disney’s response to this crisis just shows that this company has been coasting on the genius of its founders for nearly 70 years. Now this small hiccup comes along and the firm is in a crisis it seems to have no idea how to get out of.
I’m not saying that this crisis has been made worse by the government’s response. But there is no way to avoid the obvious. Government at all levels is about increasing their power and control over other people. This pandemic does seem to be a perfect opportunity for those in power to flex their muscles.
The Dow is up 300 points as of 1 pm today, partly on the new that Disney far exceeded expectations. Analysts were expecting a 64 cent per share loss when in fact it posted an 8 cent per share gain. Those numbers were fueled by Disney’s announcement that is now has more than 100 million subscribers to it’s networks that include Disney +, Hulu, and ESPN +, so while you would expect the demand for its theme park offerings to be way down for the foreseeable future, the new is actually pretty good overall.
I agree. Went to check the stock price last night and saw it went up slightly, which is good. While some might not see it, to me how Disney fares is an indicator of the general market/economy states since it’s a major avenue of people using their discretionary (NOT disposable, that’s a dumb term) income. But seriously, why was Hamilton even mentioned in the article Tom? It’s completely irrelevant. Yes, I know a few people got all giddy with excitement over it, but it’s one single, tiny blip in the TV schedule that most of us couldn’t care less about, especially with the childish cast antics. It’s not even on the same level as an animated Star Wars release. I AM looking forward to our upcoming trip and low crowd levels!
“But seriously, why was Hamilton even mentioned in the article Tom? It’s completely irrelevant. Yes, I know a few people got all giddy with excitement over it, but it’s one single, tiny blip in the TV schedule that most of us couldn’t care less about, especially with the childish cast antics.”
Regardless of what you think of Hamilton, it drove Disney+ subscriber numbers. Data shows a 74% spike in Disney+ downloads the weekend it debuted–that’s not an insignificant number.
There are a lot of television shows that I personally hate (pretty much all reality tv), but I can separate my personal opinion from their objective popularity.
Well, that is an interesting tidbit and makes a lot more sense than randomly mentioning it against the number of total reported subscribers. Sorry if you were offended, you just maybe fell a bit short of your usual thorough writing style. For the numbers, it will be a lot more meaningful if we knew how many downloaded it and actually used the service, and how many were from new accounts versus simply additional devices, and most importantly, how many will continue subscriptions after they’ve watched a few things. Plus, many people share account logins with friends and family. I imagine they won’t reveal number of times any particular program is watched.
I heard a lot of people talk about signing up to watch The Mandalorian, then canceling after it was done for the season. Doesn’t make any sense to me, but it happened. I did the early subscriber offer for the discount, knowing there would be multiple things we’d watch.
Disney was smarter to NOT release the entire season all at once, unlike Netflix and others are doing with a lot of original shows.
I don’t watch those insipid ‘reality’ shows either. As for Hamilton I don’t think anything in particular about it since I have yet to see it; I simply didn’t get sucked in on the hype. Especially with the poor behavior of cast. Same reason I don’t watch so-called professional sports any more, a bunch of overpaid whiny brats! And college sports has gotten so much worse too. However, the article you linked talking about how they edited it to be more like a film makes me more interested in watching it.
Good move ending the “free samples” of Disney+ in July, in terms of helping the bottom line!
As usual enjoyed and agree with your analysis, and think it is spot on taking into account the qualifiers you use. Being a “Grumpy” older man, I tend to lean more to glass half empty and not so rosy, so my thinking aligns more with Papa L’s statement..
Enough BOLOGNA, unless this is the beginning of the apocalypse, Disney will not only survive but will thrive in the future as long as they continue to focus on providing the “Disney Experience”, and not repeat some of their past mistakes. I would rather see them hold off on all projects until they can do them as the “Imagineers” planned than do, than a less costly version. I plan on going at least twice more (value resort, deluxe resort) but not until I can get the full experience. So they need to hurry up and do Space Ship Earth rehap and get other projects done. I’m not getting any younger.
I wonder if we will see Disney close some attractions to reduce costs, as Universal has already done with several of theirs (Kang & Kodos, Poseidon, F&F, Storm Force, Fear Factor, Barney). I could see attractions that require a relatively high number of CMs to operate (Autopia Speedway, Jungle Cruise, Mission Space) or those that few would really miss (Magic Carpets, Swiss Treehouse, Dinosaur, the entire Imagination pavilion) shuttering for while.
I think adjustments are definitely likely–reducing hours followed by closures if utilization remains low.
I would hope that Disney will be careful with that approach, though. There are already so many cuts to the experience that are dissuading some visitors from booking trips–more of that will further depress future bookings. It’s a delicate balance.
Just a few points. Greed is an emotion. Corporations base their prices mostly on supply and demand. When the Disney experience is over priced the demand will fall.
Twenty billion is cash may seem excessive but one must look at current receivables along with short term debt, accounts payable and notes payable. The latest balance sheet I could find this morning 3/30/20 indicates Disney’s short term needs for cash exceeded its supply. Disney took on another 11 Billion in debt to meet these needs.
Finally, the 8 cents a share profit was before Disney took impairment charges due to Covid. A fancy way of saying we are not going to make as much in the future so we are going to increase expense in the present – after this the loss was greater than 2.70 per share.
As Tom has stated Disney may take years to fully recover as entertainment and hospitality are dependent on our discretionary spending.
Theme park pricing is tricky. On one hand, it’s much more profitable to have higher prices and fewer guests. On the other hand, that can negatively affect hotel occupancy rates which then reduces the prices Disney can demand for a room.
But demand wasn’t Disney’s problem even with rapidly increasing prices. The reason theme parks are in trouble now is because nobody wants to pay that money for a drastically reduced Disney experience. I have many friends who were coming this year. All of them, except DVC members, have pushed their vacation to summer 2021 or beyond.
Hmm, for me the lack of fireworks really sucks, but the low, low crowd levels are a HUGE draw for me to go back to the parks.
I don’t feel bad for Disney. Many Americans are also hurting and still not working and having a tough time making ends meet. But Disney is still about greed and raised prices on food and drinks and resort rooms. Then complain attendance is not what was expected. Of course the majority of guests are Floridians and it’s time Disney realized the local AP are their bread and butter. If you want guests to come you need to give us value. Offer a lot of discounts and show you care about your guests. It’s a win win for everybody.
Think of it this way, those Americans that are hurting, some work for Disney so you should hope for those people’s sake, Disney stays strong. Though I agree, they could price things better, it is what it is.
Greed, huh? Are you greedy when you ask for a raise at work? I’m a shareholder. And you can be assured that I want maximum return on my money. Disney is not a benevolent non-profit. They’re in a business that returns value to shareholders.
I think “greed” is maybe the wrong word but I think there’s a big disconnect between the image of hospitality and care for each guest’s personal experience that Disney projects vs. the reality in how they determine pricing. When you think of someone who’s welcoming and hospitable, you don’t conjure up images of them working on an algorithm to determine the “minimum expenditure required to achieve a net positive experience for their quests”. On the flipside, when Disney puts a team together to work on determining the most efficient pricing for churros (or whatever), they’re not thinking about making things feel special for any given family, they’re only looking at business efficiencies. This isn’t morally wrong — it’s how business works. But it clashes with the elements of the Disney brand/experience that say “we exist to provide a magical experience for your middle-class family.”
I have loved 10 long visits to Disney World with my grandchildren and my adults kids for years. We have memories that still make us happy. I’m sad for the thousands cast members who have been without income. Why make Colin K a villain for recognizing that black humans have been treated with brutality. Don’t make this a political or national pride complaint. Look at other companies who make the same amount of profit but without providing the fun of a WD vacation. I’m an older white grandma
Sad to see that a great company which had so much positive momentum has fallen so hard due to this pandemic. 10 years from now, I wonder if we will believe it was all worth it.