Disney Profit Down 63%, Cuts Dividend
Walt Disney reported a worse-than-estimated profit in its fiscal second quarter and slashed its semi-annual dividend. This was in an effort to save $1.6 billion in cash as COVID-19 disrupts most of its operations.
In the stock market, adjusted earnings per share dropped 63% to 60 cents in the three months ended March 28. It was missing the 89 cents expected by analysts. Net income from continuing operations dived 91% to $475 million during the same comparative period.
The company declared that it is suspending its semi-annual cash dividend for the first half of fiscal 2020. This is due to the significant operational and financial disruption caused by the coronavirus pandemic impact.
As a result, it expects to save $1.6 billion in cash. This is based on the 88 cents a share previously paid to shareholders in January.
Bob Chapek, Chief Executive Officer said, COVID-19 has had an appreciable financial impact on a number of their businesses. They are confident in their ability to withstand this disruption and emerge from it in a strong position.
The entertainment and media mogul has repeatedly shown that it is exceptionally resilient. It is bolstered by the quality of their storytelling and the strong affinity consumers have for their brands. It is evident in the extraordinary response to the company since its launch last November, Chapek added.
Long-term Implications of the Coronavirus Outbreak on Walt Disney
In addition to the dividend suspension, the company is reducing capital spending, cutting salaries for senior management, and furloughing employees.
Due to stay-at-home orders tied to the coronavirus outbreak, Walt Disney has closed theme parks, suspended cruises, and theatrical shows. It delayed theatrical distribution of films both domestically and internationally, and experienced supply chain disruption and advertising sales impacts.
It also canceled certain sports events as well as shut down the production of most film and television content.
Its stocks have lost a third of their value in 2020, diving 32% to close at $101.06 on Tuesday.
Benjamin Swinburne, a five-star analyst at Morgan Stanley this week cut his price target on the stock. He has cut it to $125 from $130 while maintaining a Buy rating.
He said that debate is around the long-term implications of this health crisis on the movie business, particularly Disney’s studio.
The company’s content strength and growing streaming distribution scale underpin its ability to navigate and potentially benefit from these changes.
Morgan Stanley lowered the company’s FY 21 EPS to $3.45 from $4.35. This reflects a more conservative outlook on initial parks utilization post-reopening, as well as increased pressure at traditional media networks.
Swinburne added that the entertainment company may even benefit from a structural change in film distribution. He said that is if premium video-on-demand were to meaningfully replace theatrical and home video sales.
Stock trading reports that Overall Wall Street analysts have a Moderate Buy consensus rating on Disney stock. This is as 11 of 22 recommend investors buy its shares, 10 say Hold and 1 says Sell. The average price target of $122.05 implies a 21% upside potential in the shares in the coming year.
