Closed Theme Parks Sink Disney Earnings; Q3 Could Be Worse

Closed Theme Parks Sink Disney Earnings

The COVID-19 pandemic hit Disney hard for the first three months of 2020, with overall revenue down $1.4 billion largely stemming from its ravaged theme park sector, which has been closed since mid-March.

The company reported the second-quarter profit of its fiscal year at $460 million, or 26 cents a share, on sales of $18.01 billion, up from $14.9 billion in 2019. After adjusting for restructuring charges and other effects, Disney reported earnings of 60 cents a share, down from $1.61 a share a year ago.

“The impact of COVID-19 and measures to prevent its spread are affecting our segments in a number of ways, most significantly at parks, experiences and products, where we have closed our theme parks and retail stores, suspended cruise ship sailings and guided tours and experienced supply chain disruptions,” the company said in a statement on Tuesday (May 5).

According to several sources, the consequences of the pandemic are likely to become even more dramatic. Only the final few weeks of the quarter absorbed the worldwide shutdown of Disney’s theme parks. In the quarter reported on Tuesday, theme parks fell 58 percent in the quarter to $639 million, while revenue fell 10 percent to $5.5 billion.

The pandemic also hit other parts of the Disney media empire, including its movie segment. Revenues there grew about 20 percent over last year to $2.54 billion, but operating income sank 13 percent to $466 million, due to decreases in theatrical distribution as theaters closed domestically starting around mid-March. The live-action version of “Mulan” is among the films that have been postponed.

On its earnings call, Disney said it will reopen its Shanghai Disney Resort on May 11, with social distancing and volume restrictions.

Disney executives did not speculate on near-term financial effects beyond saying that the direct-to-consumer (D2C) segment – which includes Hulu and Disney+ – would see a loss of more than $1 billion in Q3. Chief Financial Officer Christine McCarthy said the company will not pay a semiannual dividend that would have been expected in July, which she said would save the company $1.6 billion.

Analysts hit the company almost as hard as the virus. “The coronavirus pandemic and the economic shutdown it has prompted have exposed a central vulnerability to Disney’s once-bulletproof business plan,” wrote The Wall Street Journal. “Unlike conglomerates that encompass various holdings without much logical connection to one another, Disney is a franchise machine, capable of absorbing a set of characters like the Marvel Studios superheroes or the Star Wars universe and using them to sell movie tickets, action figures, streaming service subscriptions and theme park tickets.”

“Disney won't feel the losses, only in parks, experiences and products – its most profitable division,” said The Motley Fool. “It will also lose studio entertainment revenue from the lack of theatrical film releases. And even with people quarantining at home, its media networks segment could suffer amid the blackout of live sports. Many pay TV distributors have reported first-quarter earnings in recent days, with most showing accelerating pay TV subscription losses. Live sports was the glue holding a lot of the pay TV bundle together, and Disney disproportionately benefits by having many consumers buy the expensive ESPN channel even though they might not watch much sports.”



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