Disney's FY20 Q3 Earnings (8/4/20)

[brianstl]

Think I saw somewhere that some was to someone in Canada.

 

[Sirwalterraleigh]

The debt? I‘m not sure if any of it was sold to the Treasury Department.

That...and there was direct cash infusion as well.

It would be shocking for Disney to not be in on that action

 

[MisterPenguin]

so if I am reading this correctly Disney has borrowed over $28 billion dollars this fiscal year, paid off $11 billion in debt this year and has $23 billion on hand. They have a total debt of over $64 billion. Plus, they have a $17.25 billion line of credit that they haven’t tapped yet.

Sounds about right.

A few billion here. A few billion there. Soon, it starts adding up to real money.

 

[Sirwalterraleigh]

Sounds about right.

A few billion here. A few billion there. Soon, it starts adding up to real money.

But it’s all smoke and mirrors...because if you’re “worth” That much you’re never required to actually pay it...The “free” market indeed

 

[MisterPenguin]

Audio is available...

Disney’s Q3 FY20 Earnings Results Webcast - The Walt Disney Company

Listen here: https://thewaltdisneycompany.com/app/uploads/2020/07/q3-fy20-earnings.mp3 DOWNLOADS: Earnings Report Financial Reconciliations Audio Transcript Forward-Looking Statements: Management believes certain statements in this call may constitute “forward-looking statements” within the...

thewaltdisneycompany.com

 

[Crazydisneyfanluke]

Sounds about right.

A few billion here. A few billion there. Soon, it starts adding up to real money.

Hey now, Disney isn't the government.

 

[Nubs70]

It's no surprise but I just wanted to share this from Disney's 10Q since it's shocking to see in print:

View attachment 489078

Theme park revenue down 96.5%.

The only "improvement" was saving money by not operating and cutting headcount. Yet stock was up after hours? ??

Something wicked this way comes.

 

[mikejs78]

No thet lost almost $5 billion in real money. People need to learn how to read a report.

It wasn't a write-down. The $5+ billion was a credit they could apply this quarter because of charges they had to book in previous quarters
related to their purchase of Fox. They were able to book the credits now in this quarter because that marked the one year mark of owning Fox. It makes it look like they made money for the quarter on paper when they actually lost billions.

It isn't paper losses, it is paper revenue from the purchase of Fox they now can put on the books because of past paper losses they had to put on the books due to buying Fox.

Maybe you should learn how to read a financial report:

Quoting from the press release:

"Diluted earnings per share (EPS) from continuing operations for the quarter was a loss of $2.61 compared to income of $0.79 in the prior-year quarter. Excluding certain items affecting comparability(1), diluted EPS for the quarter decreased 94% to $0.08 from $1.34 in the prior-year quarter."​

Yes, Disney lost money but, as stated in footnote (1):

"EPS excluding certain items affecting comparability, total segment operating income and free cash flow are non-GAAP financial measures. The comparable GAAP measures are diluted EPS from continuing operations, income from continuing operations before income taxes, and cash provided by continuing operations, respectively. See the discussion on page 2 and on pages 10 through 13."​

Page 12 of the press release explains these. The single biggest item is "Restructuring and impairment charges". This is explained to be:

"Charges in the current quarter were due to goodwill and intangible asset impairments ($4,953 million) and severance and contract termination costs related to the acquisition and integration of TFCF ($94 million)."​

Now, $5 Billion is a lot of goodwill and impairment.

What are these goodwill and intangible asset impairments?

"During the current and prior-year quarters, the Company recorded charges totaling $5,047 million and $207 million, respectively. The current quarter charges included $4,953 million of impairments of goodwill and intangible assets at our International Channels business and $94 million of restructuring costs. The impairment of goodwill and intangible assets reflected the impacts of COVID-19 and of the ongoing shift of film and television distribution from licensing of linear channels to a direct-to-consumer business model on the International Channel businesses. Restructuring costs were primarily for severance and contract termination charges in connection with the integration of TFCF. The charge in the prior-year quarter was primarily for severance costs in connection with the integration of TFCF and accelerated equity based compensation for TFCF awards that vested upon closing of the acquisition. These charges are recorded in “Restructuring and impairment charges” in the Condensed Consolidated Statement of Income."​

Disney closed down a lot of channels in its Asia-Pacific market, and wrote these off as a total loss.

The takeaway, however, is that Disney's operations made a small profit.

 

[Sirwalterraleigh]

The only "improvement" was saving money by not operating and cutting headcount. Yet stock was up after hours? ??

Something wicked this way comes.

This times 1,000

 

[Sir_Cliff]

The only "improvement" was saving money by not operating and cutting headcount. Yet stock was up after hours? ??

Something wicked this way comes.

Isn't that because the company as a whole did relatively well given the circumstances?

In other words, many on here have been suggesting that the parks, hotels, cruise line, and movie theatres being shutdown for an entire quarter would tank the company and that they were burning through cash at an alarming and unsustainable rate. That didn't end up being the case at all, and it seems like they can weather this particularly adverse environment better than most suspected. Maybe even continue to eek out a profit. In context, that's a good result.

 

[WDW Pro]

Isn't that because the company as a whole did relatively well given the circumstances?

In other words, many on here have been suggesting that the parks, hotels, cruise line, and movie theatres being shutdown for an entire quarter would tank the company and that they were burning through cash at an alarming and unsustainable rate. That didn't end up being the case at all, and it seems like they can weather this particularly adverse environment better than most suspected. Maybe even continue to eek out a profit. In context, that's a good result.

My position was and is that Disney can withstand this through the summer, then things begin getting dicey. If we get to December and vaccines are pushed significantly back, Disney would begin considering selling some assets, including the red button option I discussed before (particularly if China continues to sour US relations). As is, Disney can weather this reasonably for 12 months, though they would be incredibly stupid to not make changes if they get to month 7 with no optimism in sight.

Of course if a vaccine releases in November, get out the ticker tape parade.

 

[Sir_Cliff]

My position was and is that Disney can withstand this through the summer, then things begin getting dicey. If we get to December and vaccines are pushed significantly back, Disney would begin considering selling some assets, including the red button option I discussed before (particularly if China continues to sour US relations). As is, Disney can weather this reasonably for 12 months, though they would be incredibly stupid to not make changes if they get to month 7 with no optimism in sight.

Of course if a vaccine releases in November, get out the ticker tape parade.

I'm certainly not an expert in corporate finances, but I struggle to see that from the results the company produced today. The situation is definitely terrible, particularly for the Parks and experiences. However, it looks like they can sustain them for far beyond the end of summer through the revenue from their other divisions and, if need be, their cash reserves. The company certainly doesn't appear in danger of running out of cash anytime soon and seems relatively well positioned to try and wait the pandemic out before adjusting to what comes next. As for Shanghai, the only obvious reason to sell it at this point would seem to be political as it's apparently the best performing resort they have.

Again, I have no inside information and I'm sure Disney, like everyone, will be constantly scrambling to adjust to how things develop with the pandemic over coming months. On the surface, though, it's hard to see why there would be any hurry in the near term to start selling off divisions of the company to stay afloat or any general panic about their ability to keep the lights on before tourism comes back.

 

[WDW Pro]

I'm certainly not an expert in corporate finances, but I struggle to see that from the results the company produced today. The situation is definitely terrible, particularly for the Parks and experiences. However, it looks like they can sustain them for far beyond the end of summer through the revenue from their other divisions and, if need be, their cash reserves. The company certainly doesn't appear in danger of running out of cash anytime soon and seems relatively well positioned to try and wait the pandemic out before adjusting to what comes next. As for Shanghai, the only obvious reason to sell it at this point would seem to be political as it's apparently the best performing resort they have.

Again, I have no inside information and I'm sure Disney, like everyone, will be constantly scrambling to adjust to how things develop with the pandemic over coming months. On the surface, though, it's hard to see why there would be any hurry in the near term to start selling off divisions of the company to stay afloat or any general panic about Disney's viability.

No, you're absolutely correct. The issue is that companies would never operate all the until they reach cash empty... they'll make changes to ensure they maintain a solid cushion for a myriad of reasons. That would likely occur in January for Disney, and planning for that has already occurred / is being implemented. It's like the metaphor of the car on low fuel... at some point you begin driving it differently and looking for gas.

 

[winstongator]

Don't think that quote aged well...

I missed the call and haven't listen or read the transcript. Did an analyst ask about that? Based on the park reservation system, it appears the only group that is hitting the low capacity is pass holders.

 

[winstongator]

Media Networks revenue only went down ~$200 million from last year despite loss of live sports.

They're not getting rid of that division anytime soon.

They mentioned that decreased costs were due to deferred payments to broadcast sports.

The benefit at Media Networks was due to the deferral of sports programming rights to future quarters when we currently anticipate the events will air

 

[GoofGoof]

I'm certainly not an expert in corporate finances, but I struggle to see that from the results the company produced today. The situation is definitely terrible, particularly for the Parks and experiences. However, it looks like they can sustain them for far beyond the end of summer through the revenue from their other divisions and, if need be, their cash reserves. The company certainly doesn't appear in danger of running out of cash anytime soon and seems relatively well positioned to try and wait the pandemic out before adjusting to what comes next. As for Shanghai, the only obvious reason to sell it at this point would seem to be political as it's apparently the best performing resort they have.

Again, I have no inside information and I'm sure Disney, like everyone, will be constantly scrambling to adjust to how things develop with the pandemic over coming months. On the surface, though, it's hard to see why there would be any hurry in the near term to start selling off divisions of the company to stay afloat or any general panic about their ability to keep the lights on before tourism comes back.

TWDC has access to a lot more cash should they need it. They could be downgraded twice more and still be investment grade. It’s not an ideal option to borrow more cash but it’s better than a fire sale. If things continue to deteriorate I would assume they would borrow more cash first to weather the storm. It may turn out that once the dust settles on Covid TWDC looks to sell some assets to pay down debt, but you don’t try to sell assets during a pandemic, especially if they are devalued because of it.

 

[winstongator]

They lost 5 billion this quarter. One year of reserve cash at this rate.

They show free cash-flow of $454M for the quarter (p11). The goodwill write-down doesn't impact cash, but reflects an over-valuation of assets (gross simplification).

Disney did not lose 5 billion this quarter.

In a way they did, in a way they didn't. Did their pile of cash decrease by $5B? No.

 

[winstongator]

Here’s the details of the impairment charges from the 10Q. It is related to Covid but has nothing to do with theme parks. They are writing off a portion of the value on the books from the Fox acquisition relating to International Channels. The value on TWDC books was based on fair value (what they were worth) at acquisition and since they are worth less today they had to impair them. It’s a non-cash expense.

...
A majority of the operations in this reporting unit were acquired in the TFCF acquisition and therefore the fair value of these businesses approximated the carrying value at the date of the acquisition of TFCF.
...

This is what I thought I read/saw. Great explanation.

 

[WDW Pro]

In a way they did, in a way they didn't. Did their pile of cash decrease by $5B? No.

Home run quote.

Now the next question should be from people learning about large international corporation financials: how did Disney both lose 5b and not lose their stock pile (yet)?

Answer: Debt.

 

[brianstl]

No, you're absolutely correct. The issue is that companies would never operate all the until they reach cash empty... they'll make changes to ensure they maintain a solid cushion for a myriad of reasons. That would likely occur in January for Disney, and planning for that has already occurred / is being implemented. It's like the metaphor of the car on low fuel... at some point you begin driving it differently and looking for gas.

They do have a $17.25 billion line of credit available to them in addition to the cash on hand they have. So they can burn cash for awhile and the cash burn should slow going forward. It is hard to call a quarterly like this one good, but given the present economic situation this was better than should have been expected.

They could divest themselves of the Chinese parks, but that would be for reason besides needing cash at this point.