Disney sets out $1.4bn hit from coronavirus crisis

Disney scrapped guidance for the rest of the year and suspended its dividend on Tuesday while revealing the coronavirus crisis wiped as much as $1.4bn from its quarterly operating profit.

In the first glimpse into how the pandemic has ravaged the world’s largest entertainment company, Disney reported that its net income for the three months ending in March dropped 91 per cent year-over-year, to $475m.

On an adjusted basis Disney posted earnings of 60 cents a share, down 63 per cent from a year ago and well below Wall Street forecasts for 89 cents a share.

Few companies in Hollywood are more vulnerable to a pandemic than Disney, which in recent years has relied on its theme parks, cruise ships and blockbuster movies to deliver strong returns even as the media industry has been in turmoil. 

Now, the parks are shut, cruises are docked, and the movie theatres are dark in much of the world.

After estimating that the pandemic had knocked as much as $1.4bn from operating profit in the quarter, Disney executives sought to assure investors that the company would weather the storm. 

“[Disney] is exceptionally resilient and I believe this time will be no different,” said Bob Iger, who stepped down as chief executive in late February but remains executive chairman. His successor, Bob Chapek, echoed the comments.

Disney said it would forego a semi-annual dividend payment, saving about $1.6bn. The company has been making moves to shore up its cash position, furloughing more than 100,000 employees and signing some $13bn in credit facilities over the past few months.

Disney shares lost 2.4 per cent in after-hours trade. The company’s stock has plunged 28 per cent this year, a steeper loss than the 11 per cent decline in the S&P 500.

During the quarter, when theme parks from Shanghai to Paris to Orlando shut their gates, operating income at the parks, cruises and resorts unit shrunk to $639m, down 58 per cent from the same period last year. 

Its film studio, which last year shattered box office records with a series of blockbusters, was also bruised. Its operating income dropped 8 per cent year-over-year to $466m. 

Disney+, the company’s streaming service to rival Netflix, has been a silver lining: with people stuck at home, consumers have flocked to online video to bide their time. Disney had signed up 54.5m subscribers as of May 4, less than six months after launching — having initially predicted it would take four years to reach 60m subscribers.

The streaming business is expected to lose money for years, though, as Disney invests in programming and technology to expand the service. The direct-to-consumer business unit posted an operating loss of $812m in the quarter on $4.1bn in revenues.

“It’s difficult to think of a company which better illustrates the ups and downs of the coronavirus outbreak,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

“On the one hand, the launch of Disney+ couldn’t have been better timed,” he said. However, the impact on the parks, movie studio and television business had been “crushing”, and “it’s these businesses that generate Disney’s profits”.

Disney’s total revenue in the quarter climbed more than 20 per cent year-over-year to $18bn, just ahead of analyst forecasts for $17.9bn. 

The company said it would reopen its Disneyland park in Shanghai starting May 11, but would keep crowds to less than 30 per cent of normal capacity and require guests to wear masks and have their temperature checked.

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