Disney Hit With $1.4 Billion in Costs From Coronavirus Shutdowns

The coronavirus pandemic cost Walt Disney Co. as much as $1.4 billion in lost profit last quarter, with $1 billion coming from its shuttered theme parks alone, and nearly every part of the entertainment giant’s business taking a hit.

Earnings plunged by more than half to 60 cents a share in Disney’s second quarter, excluding some items. That trailed the 86-cent average of analysts’ estimates. Revenuerose 21% to $18 billion, but that was driven by the acquisition of 21st Century Fox’s entertainment assets last year.

Disney also said it would forgo its dividend payment in July and cut capital spending by $900 million. But the company offered some hope for its theme-park business, saying its resort in Shanghai will reopen on May 11.

“We are seeing encouraging signs of a gradual return to some semblance of normalcy in China,” Chief Executive Officer Bob Chapek said on a conference call.

22,335 in U.S.Most new cases today

-16% Change in MSCI World Index of global stocks since Wuhan lockdown, Jan. 23

-1.​071 Change in U.S. treasury bond yield since Wuhan lockdown, Jan. 23

-0.​5% Global GDP Tracker (annualized), March

The company’s dominance in theme parks and movies came back to haunt it this year, with consumers shut out of resorts and theaters. An ad slump and the blackout of live sports also have hurt Disney, which owns ABC, ESPN and other networks. But Disney+, a streaming service launched in November, has been a bright spot. It now has more than 54 million subscribers, putting it on a far faster pace than originally predicted.

The worst performance in Disney’s latest quarter came from the theme-park division, where operating income tumbled to $639 million from $1.51 billion a year earlier. Disney’s parks around the world remain closed due to the coronavirus, with the resorts in Asia shuttered since late January. Shanghai will be a crucial test of how the parks are reopened.

Disney shares fell as much as 2.8% in after-hours trading. They were already down 30% this year through the close, suffering a far steeper fall than the S&P 500 Index.

Profits at the film studio, which has been unable to show movies in theaters since mid-March, dropped 8%. A strong performance by films in theaters earlier in the quarter, such as “Frozen 2” and “Star Wars: The Rise of Skywalker,” failed to make up for write-offs the company took on other projects.

Reshuffling Movies

Disney has taken steps to mitigate its losses, such as putting its last Pixar film, “Onward,” on its new streaming service in early April, a time it would have normally been still playing in theaters.

In the company’s TV business, operating income rose 7% as increased sales of TV shows and the Fox merger boosted results. But cable networks were hurt by an advertising slump in the wake of the coronavirus lockdown. ESPN is especially vulnerable in a world without live sports.

Despite still being in the money-losing stage, Disney’s direct-to-consumer division performed better than expected. Losses at the division, which includes Disney+, came in at $812 million -- less than the $900 million analysts were projecting.

While analysts expect Disney to “be given a pass from investors” with its 2020 earnings, the company’s recovery could take two years or more, according to a note this week from MoffettNathanson. The research firm reduced its opinion on Disney to neutral from buy.

“Disney is built on shared group experiences,” Lightshed Partners’ Rich Greenfield said in a note Tuesday in which he told clients to sell the shares. “Until there is global comfort health-wise with that behavior again, Disney’s earnings are fundamentally impaired.”

Hotels and restaurants outside the company’s theme park in Shanghai began opening in March with tight protocols, such temperature checks and mask wearing by guests. At Disney’s largest theme park hub, in Florida, a task force advising Governor Ron Desantis said theme parks should not reopen in the first phase of the state’s comeback plan, which began Monday.

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