Walt Disney Co. (NYSE: DIS) has been hit hard by the coronavirus pandemic. So expectations are muted, with the company set to report second-quarter earnings Tuesday.
Analysts are predicting a profit of 88 cents per share, down by 45% from 2019. The company reported earnings of $1.61 per share in the same period last year.
Disney had revenue of $20.9 billion in the quarter that ended December 28. That was an increase from $15.3 billion the year before. Net income from continuing operations dropped 21% to $2.1 billion.
Bob Chapek, who became chief executive in February, and executive chairman Robert Iger are scheduled to discuss the earnings report with analysts in a call after the markets close.
Analyst Downgrades Stock
On Monday, MoffettNathanson analyst Michael Nathanson changed his guidance on Disney to “neutral” from “buy.” The Disney downgrade is the result of multiple pressures because of COVID-19, he said in a report to clients. The risks of a second wave of infections and deaths could extend the economic impact on the company for years.
“We believe the economic impact on the company will be longer than most anticipate, especially given the risks of a second wave of infections after reopening,” Nathanson wrote.
In April, UBS analyst John Hodulik downgraded the blue chip stock to “neutral” from buy. And Wells Fargo analyst Steven Cahall changed his guidance to “equal weight” from “overweight.” “We don’t think Parks can get back to anything close to full capacity until testing and/or vaccines are far more ubiquitous,” Cahall wrote.
Last month Disney furloughed 100,000 employees because of the pandemic. The company also entered into a $5 billion credit agreement with Citigroup.
Disney, part of the Dow Jones industrial average, is vulnerable to the pandemic in its theme parks, cruise line, movie studios, live theater productions, and cable TV networks. The bright spots for the company are its streaming services Disney Plus and Hulu. Demand for streaming services is strong because of movie theater closures and the need for entertainment options while people are social distancing at home.
Streaming Services Provide Bright Spot
Disney Plus, which competes with Netflix Inc. (NASDAQ: NFLX) and Amazon.com Inc.’s (NASDAQ: AMZN) Prime, has signed up more than 50 million subscribers since it launched in November 2019. It originally set a goal of 60 million to 90 million subscribers by 2024.
The Disney Plus subscription fee of $6.99 a month is roughly half the price of Netflix and Amazon Prime, which both charge $12.99 a month. The number of subscribers, while notable, does not translate into profits, especially because the fee is so low. Before Disney launched the streaming service, it said it expected to see profits in 2024.
Many of Disney’s businesses are dependent on the ability of people to gather in crowds of various sizes. The company’s 14 theme parks around the world, including Disney World in Orlando, Florida, closed on March 16. The parks usually draw more than 150 million visitors each year. They accounted for $7.4 billion of Disney’s income in the first quarter.
On Broadway, “The Lion King,” “Aladdin” and “Frozen” all closed their doors when the Great White Way shut down on March 12. Theatrical productions will not resume before June.
ESPN, Disney’s cable sports network, has little to offer viewers in live sports because professional and college competitions have been suspended across the country. Although the major professional sports leagues and the National Collegiate Athletic Association are in discussions about when live sports might return, no specific dates have been set. But this week ESPN began broadcasting professional baseball games from South Korea.
Disney Cruise Line announced late last month that it had canceled all of its sailings until at least late June.
Disney stock has a 52-week high of $153.42. It closed Monday at $105.50.
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