Disney Estimates $1 Billion COVID-19 Impact on Parks, Experiences Division

Bob Chapek, chairman of Walt Disney Parks -March 25, 2017 - Getty-H 2020
Marc Piasecki/Getty Images

The entertainment company's earnings dropped 63 percent during the fiscal second quarter.

Walt Disney executives on Tuesday offered the first look at the extent to which the novel coronavirus has crippled their once seemingly indestructible entertainment empire.

During the fiscal second quarter of 2020, as the pandemic took hold around the world, Disney recorded an estimated $1.4 billion impact on its income from continuing operations. Its Parks, Experiences and Products segment, impacted especially hard by the global shutdown, saw an estimated $1 billion revenue hit.

Revenues at Disney's other segments increased during the period but each felt an impact. At ESPN, advertising revenue decreased as a result of lower than typical viewership as live sports went off the air. Operating income within the studio group dropped 8 percent as movies like Pixar's Onward left theaters and stage plays stopped. One bright spot was the performance of Disney+, which forged ahead with its rollout in several European countries and India this spring despite the global shutdown. The service now has 54.5 million paid subscribers.

Across the company, earnings per share excluding certain items dropped 63 percent to 60 cents for the quarter, below Wall Street's expectations. Quarterly revenue grew 21 percent to $18 billion.

Disney is choosing not to pay the semi-annual dividend that was set for this summer, representing savings of $1.6 billion in cash. The company is not providing guidance for the rest of the year due to coronavirus-related uncertainty.

It was a dour way to ring in Bob Chapek’s first earnings report as Disney CEO after taking the reins from Bob Iger, who oversaw a period of prosperity at the company, at the end of February.

Iger kicked off the call with investors that followed the earnings announcement, acknowledging that the current situation is "unprecedented" for Disney. "I have absolute confidence in our ability to get through this challenging period and recover successfully," he added before handing the call off to Chapek. 

“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,” Chapek said in a statement. “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 performance during the period doesn’t reflect the full impact of the coronavirus. That will come when the company discloses the financial results of the current quarter, during which its parks have remained closed, its cruise ships have stayed at port, its movies have sat unreleased and live sports have been off the air.

Analysts at both MoffettNathanson and Lightshed Partners downgraded Disney’s stock ahead of the earnings release, citing the uncertainty surrounding the business amid COVID-19. Last month, S&P Global also downgraded Disney's credit rating, forecasting that its theme parks "won't likely return to normal capacity utilization at the same rate as the overall economy even after stay-at-home restrictions are eased."

Disney addressed the pandemic headwinds by cutting executive pay and stripping Iger of his salary. The company has also conducted widespread furloughs, which have impacted employees at Walt Disney Studios as well as Disney Parks & Resorts. In April, Disney also took out a $5 billion line of credit, bolstering its liquidity.

During Tuesday's call, Chapek focused on plans to resume some business operations, announcing that Shanghai Disneyland is scheduled to reopen on Monday via a phased approach. He also reiterated plans to release several movies in theaters later this year, starting with Mulan on July 24. Disney+, meanwhile, will launch in Japan, parts of Europe and Latin America later this year. 

"When I stepped into this new job two-and-a-half months ago, none of us could have imagined the suffering and sacrifice" that people would experience, Chapek said. "Just about everyone has been affected in one way or another. Fortunately, amid the adversity, we've seen the best of humanity."

Disney shares, which closed the day down 2 percent to $101.09, were down more than 2 percent after hours.