01—Abstract
Summary
Summary of the 10-Q filed May 5, 2020. Cited figures are marked; the original filing is the authoritative source.
The Walt Disney Company reported its fiscal second-quarter 2020 results, reflecting the significant impact of the COVID-19 pandemic, which led to widespread business closures including theme parks, cruise lines, and retail stores.
Total revenues increased by 21% year-over-year to $18.0 billiona, largely driven by the consolidation of Twenty-First Century Fox (TFCF) and Hulu. However, net income attributable to Disney plummeted by 92% to $460 million, and diluted earnings per share (EPS) from continuing operations dropped 93% to $0.26. This sharp decline in profitability was primarily due to the absence of the significant Hulu gain recorded in the prior year's quarter, coupled with increased amortization expenses related to the TFCF acquisition and the operational disruptions caused by COVID-19.
The Parks, Experiences and Products segment saw a substantial 58%b decline in operating income, significantly impacted by temporary closures and reduced demand. Conversely, the Direct-to-Consumer & International segment showed strong revenue growth, largely due to the launch of Disney+ and the inclusion of Hulu and TFCF, though it reported a substantial operating loss as investment in the streaming service continues. Media Networks and Studio Entertainment experienced more modest changes in operating income compared to the prior year, with Media Networks showing growth and Studio Entertainment a slight decline.
Despite the challenges, Disney highlighted the strong subscriber growth for Disney+ exceeding 50 million paid subscribers. The company has implemented significant mitigation efforts in response to the pandemic, including increasing its cash balance through debt issuance, suspending dividends, and reducing discretionary spending. Management expressed confidence in the company's financial position and liquidity, supported by its cash reserves and available credit facilities, while acknowledging the ongoing uncertainty and potential for further impacts depending on the duration of the pandemic.
02—Key points
Key Highlights
- Total revenues increased 21% to $18.0 billion, primarily due to the consolidation of TFCF and Hulu.
- Net income attributable to Disney decreased 92% to $460 million, impacted by the absence of a prior-year gain and COVID-19 disruptions.
- Diluted EPS from continuing operations fell 93% to $0.26, significantly below the prior year's $3.53.
- Parks, Experiences and Products operating income decreased 58% to $639 million, largely due to COVID-19 related closures.
- Direct-to-Consumer & International revenue surged, driven by Disney+'s launch and subscriber growth, but operating loss widened to $812 million due to increased investment.
- Disney+ surpassed 50 million paid subscribers globally.
- The company took significant mitigation steps in response to COVID-19, including not declaring a dividend for July 2020 and increasing its cash balance through debt.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2020filed May 5, 2020Financial Statements
Q2 FY2020 against Q2 FY2019
| Line item | Q2 FY2020Q2 FY2019 | Change |
|---|---|---|
| Revenue | $18.02B$14.92B | +20.8% |
| SG&A Expenses | $3.39B$2.33B | +45.6% |
| Operating Expenses | $16.66B$11.53B | +44.5% |
| Operating Income | $2.41B$3.81B | −36.9% |
| Interest Expense | $365.00M$198.00M | +84.3% |
| Net Income | $460.00M$5.45B | −91.6% |
| EPS (Basic) | $0.25$3.56 | −93.0% |
| EPS (Diluted) | $0.25$3.55 | −93.0% |
| Shares Outstanding (Basic) | 1.81B1.53B | +18.2% |
| Shares Outstanding (Diluted) | 1.82B1.54B | +18.2% |
05—Questions
Frequently Asked Questions
What was the primary driver behind the significant year-over-year decrease in net income?
The primary driver for the sharp decrease in net income was the absence of a significant one-time gain from the remeasurement of the Hulu investment recognized in the prior-year quarter ($4.9 billion). Additionally, the current quarter's results were negatively impacted by increased amortization expenses related to the TFCF acquisition and the early operational disruptions caused by the COVID-19 pandemic, particularly the closure of theme parks and resorts.
How did the COVID-19 pandemic specifically affect Disney's different segments?
The COVID-19 pandemic had a significant adverse impact across most segments. The Parks, Experiences and Products segment was the most heavily impacted, with an estimated $1.0 billion reduction in operating income due to the closure of theme parks, resorts, and suspension of cruise ship sailings. Media Networks saw reduced advertising revenue due to lower viewership, particularly from the cancellation of live sports events. Studio Entertainment experienced impacts from theater closures, delaying theatrical releases, and Direct-to-Consumer & International saw disruptions in content production and availability, along with some advertising impacts.
What is the status of Disney+'s subscriber growth and its financial performance?
Disney+ has demonstrated strong initial growth, exceeding 50 million paid subscribers globally as of the reporting period. While this represents a significant revenue opportunity, the Direct-to-Consumer & International segment, which includes Disney+, reported a substantial operating loss of $812 million for the quarter. This loss is attributed to increased programming and production investments to support the platform and the costs associated with its global rollout, indicating that the company is prioritizing subscriber acquisition and market penetration over immediate profitability for this segment.
What actions has Disney taken to mitigate the financial impact of COVID-19?
In response to the pandemic, Disney has implemented several mitigation measures. These include significantly increasing its cash balance by issuing commercial paper and senior notes, entering into a new credit facility, suspending its quarterly dividend payable in July 2020, temporarily reducing management compensation, temporarily eliminating Board of Director retainers and committee fees, and furloughing a large portion of its workforce while continuing to provide them with medical benefits. The company also stated it may take further actions like reducing capital expenditures and content investments.
06—Continue