Disney Quarterly Earnings: Profits Down 91%, Parks & Resorts Loses $1 Billion
Walt Disney Company reported its second-quarter earnings and future forecast for 2020 on an investor call held by CEO Bob Chapek and Chairman Bob Iger. In this post, we’ll cover some of the good & bad of these results, plus updates from the call on the closures of Walt Disney World, Disneyland, and Shanghai Disneyland.
The earnings call comes after several investors have downgraded the Walt Disney Company’s stock in recent weeks. The most notable of these we discussed in Will Walt Disney World Stay Closed Until 2021? which covered the bold prediction made by Swiss bank UBS analyst John Hodulik that the US parks would not reopen until January 2021 at the earliest.
Just yesterday, more analysts downgraded their ratings on Disney’s stock or trimmed price targets. Morgan Stanley analyst Benjamin Swinburne did the latter, lowering the near-term forecast on Disney specifically due to a more conservative outlook on initial theme parks utilization. While analysts differ on the timeline, the consensus is that Disney faces near to medium-term challenges with attendance at Walt Disney World and Disneyland, among other things…
MoffettNathanson analyst Michael Nathanson took a similar view prior to the earnings call, downgrading his rating on the Walt Disney Company’s stock from buy to neutral and cutting his price target by $8 to $112. In a report (via Hollywood Reporter), he elaborated at length on his justifications, stating: “Our Disney downgrade is also an admission that we believe the economic impact on the company will be longer than most anticipate, especially given the risks of a second wave of infections after reopening.”
The analyst further reduced his earnings forecasts for Disney, explaining: “We do expect Disney to be given a pass from investors on fiscal year 2020 (which ends in September) earnings and to some degree fiscal year 2021 as the impact of the pandemic likely lingers. However, we are also reducing our fiscal year 2022 forecasts to factor in the additional risk and uncertainty about what a new normal will look like across most of Disney’s businesses. Looking at those fiscal year 2022 forecasts, the risk-reward is just not that compelling.”
To those points, Nathanson is forecasting a 33% drop in revenue for this fiscal year (which ends in September), from $26.2 billion to $17.7 billion. He’s predicting a 1% decline for the next year (beginning on October 1, 2020) and a 22% rebound in fiscal 2022 to $21.3 billion.
That would mean the road to recovery lasts multiple years, and Walt Disney World’s 50th Anniversary year results in $4 billion less revenue than last year, which saw the debut of Star Wars: Galaxy’s Edge (but also depressed attendance in the lead-up to the land’s debut). To contextualize that, that’s roughly the same result as two years ago, but still double the revenue during the Great Recession lows (here’s the division’s historical revenue data).
Turning to the Walt Disney Company’s fiscal second quarter 2020 financial results, there was good and bad. Profits were down 91% to $475 million, and earnings per share for the quarter decreased 63% to $0.60 year over year. Of the results, CEO Bob Chapek said that while there was an “appreciable financial impact on a number of our businesses, we are confident in our ability to withstand this disruption and emerge from it in a strong position.”
Of particular interest for Parks, Experiences and Products is that the closure cost Disney $1 billion primarily in terms of lost revenue. This is especially noteworthy given that the second quarter only covered 16-18 days of Walt Disney World, Disneyland, and Disneyland Paris being closed. The numbers were higher for Shanghai and Hong Kong Disneyland (just over 2 months of each being closed)–per previous estimates, those parks account for roughly $300 million in lost revenue.
The Parks, Experiences & Products division saw a 10% drop in total revenue, which sounds bad. However, considering the circumstances–and that the parks were closed for 18% of the quarter, it’s actually somewhat of a bright spot in the long-term.
Absent the closures, theme park revenue would’ve been up considerably for the quarter. This is probably not too surprising given the peak crowds we observed during the winter off-season at Walt Disney World, which now seems like a distant memory.
Additionally, per capita guest spending was up 13% at the domestic parks & resorts, with attendance similarly up. In total, results across the board were trending upward year over year considerably. Of course, this is before things were “derailed” which caused more numbers to turn negative.
Suffice to say, we’ll have a much better idea of the financial impact of the closure on Parks, Experiences and Products once the third quarter results are released. The second quarter’s $1 billion lose for that division will pale in comparison to those for the current quarter, which will likely be exponentially higher.
The call itself did offer illuminating insights as to how Disney views its present situation and future prospects. On the call, CEO Bob Chapek indicated that they could not share a specific date for fully reopening Walt Disney World and Disneyland, but noted that they continue making plans, and evaluating scenarios for reopening in accordance with government and health safety standards. More on this in Chief Medical Officer Announces Considerations to Reopen Walt Disney World & Disneyland.
Speaking of which, Chapek indicated that Disney is seeing signs of hopes for a return to normalcy for the US parks based upon what the company is observing at Shanghai Disney Resort. On the call, he also announced that Shanghai Disneyland Reopens Next Week With Limited Capacity & Health Measures. Approaches for operating Walt Disney World and Disneyland may include implementation of capacity limitations and health screening measures, including those that will be utilized at Shanghai Disneyland.
While the lack of live sports plus theater & theme park closures hurt several divisions, there was one huge bright spot: the Disney+ streaming service.
Disney+ grew its subscriber count by 26% to 33.5 million subscribers in the second quarter, driving revenues up 260% in Disney’s direct-to-consumer and international division. Disney Plus has added another 21 million subscribers since then, with a total of 54.5 million subscribers as of May 4, 2020. This far outpaces even the best expectations and projections, and is a significant source of optimism for the Walt Disney Company in the long-term as it tries to compete in this increasingly crowded space.
The Walt Disney Company also announced that it would take the rare step of skipping its dividend payment for the first half of the 2020 fiscal year. That will save Disney over $1 billion, and provide the company with necessary liquidity during the ongoing closures that have resulted in significant lost revenue.
All things considered, the earnings call was more upbeat than we probably would’ve expected given the circumstances. Long-term, there are plenty of reasons for optimism, and both Bob Iger and Bob Chapek projected confidence that Disney is positioned to weather the current storm and emerge stronger out the other side. They spoke repeatedly on the brand’s resilience and affinity among consumers, and if the passionate comments we’ve seen here over the past several weeks are any indication, they’re not wrong.
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What do you think of Walt Disney Company’s second-quarter earnings and future forecast for 2020? Does this signal to you that Disney wants to reopen the parks sooner rather than later to stem the bleeding? Think Walt Disney World will reopen by Summer 2020? If not, what’s your predicted date/month? Keep comments respectful, apolitical, and on topic. Anything not following these requirements will be removed.
Most of us who travel to WDW from afar, have been used to planning every bit of our trip for years now. Gone is the “let’s hop on that ride” or “let’s eat here at this table service restaurant without a reservation”. I think over planning in this instance would help tremendously to bring in the deluxe resort dollars while not filling capacity levels too high. Just a thought, but what if you were staying at a resort and got to plan every ride of your day before ever setting foot inside the park? I’m not sure there is a correct answer to this nightmare. All I know, is businesses here are staggering shifts. If they can find a way to not just limit capacity but also stagger flow, then that’s the only way to clean anything. They will want to slow the financial bleeding, but a virus outbreak will set them back big time. It will happen more than likely and I still wonder about the bag checks. You would have to change gloves with each check. That’s thousands of sets of gloves per day. I just don’t know how they are going to pull this off. The place could turn into New York within a week. It’s not like going to the grocery store. When you go home, you limit who comes into your home. What about Mousekeeping? As someone who used to work in the hospitality industry, I know that things aren’t as clean as you would like them to be before the outbreak, nevermind after. The hairdryer in your room would have to be sanitized, those cups they reused, will now need to be disposable covered in plastic. Those coffee machines, the refrigerators, even your iron would need to be sanitized. I can’t imagine the nightmare. The airfilters in your room as yes, those will be a problem if they don’t filter properly as the virus stays in airconditioning vent systems after a person leaves from what I’ve read and who is going to sleep with a mask on? Are they going to clean those comforters? That’s why the CDC said the projections for deaths related to CoVid19 dropped dramatically when all family members stayed home if someone was infected because its very hard to share living space and not be at risk. I’m really praying that God protects us and that the pharmaceutical companies and government get together to make those compassionate use medications available to all as fast as they can.
Being a Florida resident and enjoying the Disney World parks since the opening day as a child and now as a grandmother, I feel the magic fading. The TV commercials of family’s running happily and freely through the park to literally jump on a ride is a total myth. Park capacity limits should have been enforced years ago and the cost should at least be affordable for the middle class. If the cost of the park admission is barely affordable the cost of food, beverage and souvenirs should be. Something has to give. I have never seen Disney so dirty and the loss of a yearly income being wasted by uncomfortable surroundings, lines, rudeness and disrespect as I do now. Please, please Walt would be shaking his head in sorrow.
But I still want to go to Walt Disney World.
I love the All Star Resorts & their pools.
The parks not so much, they are much too crowded.
It does almost seem like justice that Disney had the rug pulled out from under them, if only I didn’t love the parks so much. The greed is kind of disgusting. I was getting slightly disgusted at the massive crowds. Disney should’ve capped capacity much lower. I cannot believe people haven’t been trampled or maybe they have been and it wasn’t publicized.
Said Chapek on the call, “There are certain you know trimmings that we’re doing here and there, to be responsible from a financial standpoint, but we have such great intellectual property in our Imagineers over at our theme parks, where the majority of our capital goes – they have done such a tremendous job of planning out future experiences for our guests that we’re just going to go ahead and take a slightly finer-tooth comb, if you will, through those expenditures, but essentially I plan on investing behind those businesses like we always have.”
I will be shocked, and would take a gentleman‘s bet on my position, if this is actually true. It’s sad, but I’d have to imagine capital expenditures at the parks are going to take a massive, massive hit. I’d wager the EPCOT redesign will fall woefully short of what they had presented as the future…
That’s been my immediate take on it, too. I sincerely hope I’m wrong in thinking that Epcot is going to get the short end of the stick in all of this and end up just as bad off as it was before renovations started, if not worse.
What about there break even point? How many guests will be allowed on a given day and at what occupancy is it even worth opening for? You can’t open an entire park just for 100 guests. It does not make financial sense. Will prices rise as a result of lower occupancy capabilities? Will they wait to open until that magic number of guests is allowed? Six (6) feet apart in line for any attraction reduces their numbers astronomically. And imagine the line at Casey’s Corner. It will be backed up to the main entrance gate with 6 foot intervals.
My guess is virtual queues. You can already order food via the app at a lot of the counter service restaurants, so they might look at ways to severely cut down on the number of people waiting in line to order their food in person by pushing use of the app, restricting entry to the line, making CMs with iPads available for remote ordering outside the restaurants, that kind of thing. That at least cuts it down to only people whose food is ready or near-ready coming up to the counters to pick up orders.
Presumably they’re looking at virtual queues for more of the rides, too, but that still leaves the problem of people having to wait somewhere in the park. I read a comment a while back about the Rise of the Resistance virtual queue that pointed out that it effectively made the entire park a queue for RotR, and all the people who would have been “eaten up” by the queue area were congregating elsewhere (namely, other rides’ queues). Not sure how low they’ll have to bring capacity for that not to present a major issue.
I understand pushing the app for mobile food orders and restricting the number of patrons in the pick up area but my question is where are people going to sit to eat? If they remove tables for reduced capacity inside the restaurants, people will have to walk around and stalk tables for their party. Normally, when we at at Columbia Harbour House, we find a table first and then place our mobile order. Two of us will go down and pick up the order while everyone else waits at the table. The last time we were there, it was so crowded that we had to stalk the area looking for people who were getting ready to leave.
Penny, this isn’t an attack upon you because you’re just responding to the table shortage in the best way you can.
However, people holding tables waiting for the rest of their party to return with food increases the total time the table is in use per person. This makes the table shortage worse, causing more people to grab and hold tables while waiting for food.
To be clear, the problem is the inadequate number of tables. Restaurants at WDW were designed when far fewer people visited the Parks. With the current “jam as many people into the Parks as possible to keep goosing our quarterly numbers” policy, this is yet another case where Park infrastructure is not adequate to number of guests visiting. And yet another example of the Disney experience being hurt by overcrowding.
Yep I canceled our trip for first week of September. I’m not going to spend thousands of dollars on Disney trip wearing mask and social distancing. However if I get great DISCOUNTS maybe i would reconsider (“MAYBE)
We did a big family vacation to Walt Disney World Feb 5-15 2020. 17 family members! We got in and out before all this COVID stuff hit the fan. Had a nice time, but Disney is darn expensive!! First time extended family met us there. Our 7th trip to Disney since 2001. It will be awhile before we go back. Had issues with buses at hotel, reservations,etc. it’s not the same Disney it was 5 years ago.
This is so very true.
If Disney adopts the surveillance and control features they are using in Shanghai for the US parks, the US parks are finished. Bringing a protocol developed in the Chinese police state to US shores is the ultimate folly, and is one Americans will never voluntarily adopt.
I wonder what sort of internal data/benchmarks Disney has set for itself when it comes to reopening. Obviously bleeding money indefinitely isn’t an option, but I would assume they would tend to err on the side of being conservative (not politically conservative) when it comes to public health. I cant fathom them being closed long, but I also can’t fathom them opening up anytime soon. My brain is melting!
Wearing masks where you suppose to have fun , what kind of fun pictures will take.
How will they keep the cleanliness of the rides? Will they clean after each ride?
What about the line ups and wait time.
how about interacting with the characters?
It’s all messed up.
I will not spend thousands of dollar for that kinda trip , I already cancelled mine for July we were supposed to visit WDW for the first time , we had the luck to be at DL on 2018.
Until this pandemic finds an end I’m not risking my family health for a controlled trip full of fear catching any disease .
I have no idea what to think regarding the future, but I’m happy to she Shanghai opening in some capacity and will read with interest how that goes next week.
I’m not shocked at all, but am a bit saddened about the 13% increase in guest spending (when GDP increased 2.3% and wages reportedly 4% in 2019). I know that increased spend is a target of TWDC, but 13% is a big number. (Of course, all that is out the window in the current situation where guest spend is at $0.)
Ironically, I visited WDW in mid-Dec 2019; an ABD Southern California Backstage trip that included DL in early Jan 2020; back to WDW in early March 2020. So 3 visits in just over 3 months.
I am an Annual Pass Holder for WDW, even though I live in Kansas, and try to visit 2x yearly.
I had another trip set for mid-May but moved it to late October with the assumption that they stand a better chance of making money by opening for at least the fall/winter holiday season.
To my mind, they are long overdue in limiting capacity, especially when they close early so many nights for extra pay parties. Limiting day crowds and controlling attendance at extra pay events could be more pleasing to guests. I don’t do all day park visits, preferring a mid-day rest break and returning for dinner.
Another thought would be eliminating FP all together and immulate (some version of) the pass system used by Universal … “stay in one of our resorts and go to the front of the line all day long” free with deluxe, but priced accordingly for moderate and value resorts. Good neighbors should have to pay as well. It seems Disney has made many concessions to Good Neighbor resorts the last few years that they could back off of now to allow their own guests more space and time in resorts as well.