Walt Disney Company Second Quarter Earnings show the impact of COVID-19 on the DPEP segment to be $1 billion

May 05, 2020 in "The Walt Disney Company"

Posted: Tuesday May 5, 2020 4:16pm ET by WDWMAGIC Staff

The Walt Disney Company has today released its second fiscal quarter earnings, which shows that the Parks, Experiences and Products revenues for the quarter ended March 28 2020 decreased by 10% to $5.5 billion, and segment operating income decreased 58% to $639 million.

Most notably, the company puts the impact of COVID-19 on the Parks, Experiences and Products segment at around $1billion in the quarter.

“While the COVID-19 pandemic has had 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,” said Bob Chapek, Chief Executive Officer, The Walt Disney Company. “Disney has repeatedly shown that it is exceptionally resilient, bolstered by the quality of our storytelling and the strong affinity consumers have for our brands, which is evident in the extraordinary response to Disney+ since its launch last November.”

Disney's Q2 FY20 Earnings Results in full

Parks, Experiences and Products
Parks, Experiences and Products revenues for the quarter decreased 10% to $5.5 billion, and segment operating income decreased 58% to $639 million. Lower operating income for the quarter was due to decreases at both the domestic and international parks and experiences businesses and to a lesser extent, at our games and merchandise licensing businesses.

As a result of COVID-19, we closed our domestic parks and resorts, cruise line business and Disneyland Paris in mid-March, while our Asia parks and resorts were closed earlier in the quarter. As a result, volumes were negatively impacted in the quarter. We estimate the total impact of COVID-19 on segment operating income in the quarter was approximately $1.0 billion.

Prior to the closure of our domestic parks and resorts, volumes and guest spending were higher compared to the prior-year quarter.
Costs for the quarter were higher compared to the prior-year quarter due to an increase at our domestic parks and experiences driven by expenses for new guest offerings, which included Star Wars: Galaxy’s Edge, the net cost of pay to employees who were not performing services as a result of actions taken in response to COVID-19, and inflation.

Lower operating income at our games business was due to the prior-year sale of rights to a video game and lower royalties from the licensed title Kingdom Hearts III.

The decrease in merchandise licensing operating income was due to lower minimum guarantee shortfall recognition and a decrease in revenue from merchandise based on Mickey and Minnie and Avengers, partially offset by higher revenue from Frozen merchandise. Revenues from merchandise based on Mickey and Minnie in the prior-year quarter included the benefit of Mickey’s 90th birthday. Merchandise licensing results for the current quarter were adversely impacted by COVID-19.

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Imagineer45May 12, 2020

That is just not true. They had an operating profit of $2.6 billion in 2019. The only large metric where they are negative is cash flow, which is projected to be positive sometime between 2021-23.

DVCakaCarlFMay 11, 2020

Makes the B/S look good and why not in this low interest market. The money is practically free.

bartholomr4May 11, 2020

They are going to payoff existing higher interest rate bonds, and replace them with lower priced bonds.

seascapeMay 11, 2020

The are losing millions on the parks and not receiving money from the box office. However, Disney+ is positive for the cash flow and the studios. The Disney+ service is still losing money but they are paying the studio much more than they are losing. Accounting is a very interesting profession and allocating revenues and expenses fascinate. If Mandalorian was owned by Disney+ and not Lucasfilm the accounting would be completely different as the money Disney+ paid for the show would not be 100% expense since they would still own an asset but since Lucasfilm owns the show it is 100% expense for Disney+ while Lucasfilm made a profit on production and still has an asset. Bottom line, Disney does not need as much money as they borrowed. So they will either pay off more expensive debt or build or buy something else.

denyuntilcaughtMay 11, 2020

One thing to remember is that while Netflix pulls in a ton of revenue, it has never recorded a profit. Streaming services are notorious financial pits.

DisneyOutsiderMay 11, 2020

They're hemorrhaging millions upon millions of dollars every day. That's why they need the cash infusion, to pay for their enormous cost burdens. I wouldn't look for them to make any Fox-like acquisitions in the near term.

seascapeMay 11, 2020

What are they going to do with this extra money? Is it just to pay off prior debt with lower interest? To pay for their current expansion plans? Or to buy something like Sony's Spiderman and family movies and rights or something else? Given the depressed values of so many assets there are many possibilities. I am always looking for undervalued assets and there are quite a few out there that Disney could take advantage of.

bartholomr4May 11, 2020

Disney is tapping the bond market again with a six-part deal Published: May 11, 2020 at 12:37 p.m. ET By Ciara Linnane The Walt Disney Co. DIS, -0.56% is back in the bond market with plans for a six-part deal, according to a filing with the Securities and Exchange Commission. The move comes after the entertainment giant sold $6 billion of bonds in March. The company did not offer details on tranche size or maturities, but said the proceeds will be used for general corporate purposes, including repayment of commercial paper and other debt. The deal is being underwritten by BNP Paribas, Credit Suisse, Deutsche Bank, Goldman Sachs and Morgan Stanley, said the filing. Disney posted first-quarter earnings last week that showed profit down 90% as the coronavirus pandemic pressured everything from theme parks to film production to television advertisements. COVID-19 cost Disney at least $1 billion in profit just for its theme-park unit, executives said. Shares were down 1.3% Monday and have fallen 26% in the year to date, while the Dow Jones Industrial Average DJIA, -0.06% has fallen 15%. https://www.marketwatch.com/story/disney-is-tapping-the-bond-market-again-with-a-six-part-deal-2020-05-11?mod=home-page It looks like Disney is taking advantage of really low rate and refinancing the remaining 21CF Debt.

DCBakerMay 08, 2020

The Shanghai Disneyland website doesn't show they are sold out for the next month, at least as of now.

SourcererMark79May 08, 2020

If this is any indication of what could potentially happen here, it's going to be a wild ride.

bartholomr4May 08, 2020

CNBC just reported from Shanghai, that Disney started selling tickets to the park this morning. Tickets for the first day sold out in 3 minutes, and for the first week in less than an hour. The park is now sold out for the next month. Looks like the pent-up demand there is overwhelming the need to shelter. Its now up to Disney to execute, and make sure the virus doesn't spread to these visitors. https://finance.yahoo.com/news/shanghai-disneyland-tickets-sell-park-060153621.html

LilofanMay 08, 2020

Bezos could have been worth more but had to give his ex, $35 billion for the divorce settlement. It could have been worse. She didn't get half...

Rosso11May 08, 2020

Disney is worth over $190B as of today. However you would have to offer a lot more than that to be taken seriously, probably $250B+ There are a few companies that could afford it. But I doubt there is a single person who could realistically try.

eggMay 08, 2020

Fantastic song. That’s not saying much.