Walt Disney Profit Plunges 63% Hit By Virus Impact, Cuts Cash Dividend

Walt Disney (DIS) reported worse-than-estimated profit in its fiscal second quarter and slashed its semi-annual dividend in an effort to save $1.6 billion in cash as the coronavirus pandemic disrupts most of its operations.

Adjusted earnings per share dropped 63% to 60 cents in the three months ended March 28, from the year earlier period, while missing the 89 cents expected by analysts. Net income from continuing operations plunged 91% to $475 million during the same comparative period.

The entertainment and media giant declared that it is suspending its semi-annual cash dividend for the first half of fiscal 2020, due to the “significant operational and financial disruption” caused by the coronavirus pandemic impact. As a result, Walt Disney expects to save $1.6 billion in cash, based on the 88 cents a share previously paid to shareholders in January.

“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,” said Bob Chapek, Chief Executive Officer, The Walt Disney Company. “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.”

In addition to the dividend suspension, Walt Disney is reducing capital spending, cutting salaries for senior management, and furloughing employees.

As a result of stay-at-home orders tied to the coronanvirus outbreak, the entertainment and media mogul has closed theme parks, suspended cruises and theatrical shows, delayed theatrical distribution of films both domestically and internationally, and experienced supply chain disruption and advertising sales impacts. It also had to cancel certain sports events and shut down the production of most film and television content.

The closures and disruptions have cut the company’s profits by about $1.4 billion in the reported quarter, the company said.

Walt Disney shares have lost a third of their value this year, diving 32% to close at $101.06 on Tuesday.

Five-star analyst Benjamin Swinburne at Morgan Stanley this week cut his price target on the stock to $125 from $130, while maintaining a Buy rating.

“The most interesting debate is around the long-term implications of this health crisis on the movie business and in particular Disney's studio,” Swinburne said in a note to investors. “Disney's content strength and growing streaming distribution scale underpin its ability to navigate and potentially benefit from these changes.”

Morgan Stanley lowered Disney’s FY 21 EPS to $3.45 from $4.35, reflecting 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, “if premium video on-demand (P-VOD) were to meaningfully replace theatrical and home video sales”.

Overall Wall Street analysts have a Moderate Buy consensus rating on Disney stock as 11 of 22 recommend investors buy its shares, 10 say Hold and 1 says Sell. The $122.05 average price target implies 21% upside potential in the shares in the coming year. (See Walt Disney stock analysis on TipRanks).

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