Disney’s Fiscal Full Year and Q4 2019 Earnings Webcast

[The_Jobu]

Um, okay. So if the parks are doing so well, how come Disney recently cut so much live entertainment?

raise prices, cut spending, show high percentage growth.

A common short-sighted business practice. Iger will walk out the door soon and this will all be the next guy's problem when it catches up to them.

 

[Andrew C]

Um, okay. So if the parks are doing so well, how come Disney recently cut so much live entertainment?

wait. What recent live entertainment cuts? I remember the other month about some CM hours being cut and something about layoffs. But what recent live entertainment cuts did I miss?

 

[Mickeyboof]

wait. What recent live entertainment cuts? I remember the other month about some CM hours being cut and something about layoffs. But what recent live entertainment cuts did I miss?

Great Moments with the Muppets cut.

Royal Majesty Makers cut.

Burudika cut.

Move It! Shake It!, Jammitors, Matsuriza In Japan get reduced showtimes.

Lightning McQueen’s Racing Academy DJ, Incredibles and Dinoland dance parties cut (which is fine by me).

Disneyland lost The Laughing Stock Company (replaced by a walk around magician and supposedly dueling pianos) and Pixar Philharmonic and the Trolly Boys.

Did Epcot get the story of Coco back?

 

[Andrew C]

Great Moments with the Muppets cut.

Royal Majesty Makers cut.

Burudika cut.

Move It! Shake It!, Jammitors, Matsuriza In Japan get reduced showtimes.

Lightning McQueen’s Racing Academy DJ, Incredibles and Dinoland dance parties cut (which is fine by me).

Disneyland lost The Laughing Stock Company (replaced by a walk around magician and supposedly dueling pianos) and Pixar Philharmonic and the Trolly Boys.

Did Epcot get the story of Coco back?

Ah yes. I remember reading the announcement that included a good chunk of this a couple months ago or so.

 

[Lilofan]

Great Moments with the Muppets cut.

Royal Majesty Makers cut.

Burudika cut.

Move It! Shake It!, Jammitors, Matsuriza In Japan get reduced showtimes.

Lightning McQueen’s Racing Academy DJ, Incredibles and Dinoland dance parties cut (which is fine by me).

Disneyland lost The Laughing Stock Company (replaced by a walk around magician and supposedly dueling pianos) and Pixar Philharmonic and the Trolly Boys.

Did Epcot get the story of Coco back?

I believe there was some chatter on a popular live musicians duo performing at Port Orleans bar area that was recently eliminated also.

 

[mikejs78]

Great Moments with the Muppets cut.

Royal Majesty Makers cut.

Burudika cut.

Move It! Shake It!, Jammitors, Matsuriza In Japan get reduced showtimes.

Lightning McQueen’s Racing Academy DJ, Incredibles and Dinoland dance parties cut (which is fine by me).

Disneyland lost The Laughing Stock Company (replaced by a walk around magician and supposedly dueling pianos) and Pixar Philharmonic and the Trolly Boys.

Did Epcot get the story of Coco back?

Happens every year at the end of the fiscal year. Some entertainment gets cut, and new entertainment is added over the next several months.

 

[peter11435]

I believe there was some chatter on a popular live musicians duo performing at Port Orleans bar area that was recently eliminated also.

More a change than an elimination.

 

[J Pye]

Happens every year at the end of the fiscal year. Some entertainment gets cut, and new entertainment is added over the next several months.

Whilst there is some truth in this, it is rarely to this extent. In 2016 after Shanghai’s costs overran, entertainment was cut similarly in the domestic parks. September was undeniably soft in the domestic parks and it was followed by the severest entertainment cuts since 2016. Star Wars was meant to boost attendance in September at WDW and it didn’t seem to have that impact. Have there been any announcements of new entertainment since the cuts? The cuts were likely to try to pad the bottom line after the difficulties of the GE launch.

 

[Mickeyboof]

Happens every year at the end of the fiscal year. Some entertainment gets cut, and new entertainment is added over the next several months.

Sure. But this was a heavier blow than other years.

I also forgot, a Disneyland New Orleans Square band got cut too, right?

 

[Brad Bishop]

Great Moments with the Muppets cut.

Royal Majesty Makers cut.

Burudika cut.

Move It! Shake It!, Jammitors, Matsuriza In Japan get reduced showtimes.

Lightning McQueen’s Racing Academy DJ, Incredibles and Dinoland dance parties cut (which is fine by me).

Disneyland lost The Laughing Stock Company (replaced by a walk around magician and supposedly dueling pianos) and Pixar Philharmonic and the Trolly Boys.

Did Epcot get the story of Coco back?

Don't forget all of the street performers at Epcot getting cut a few years back. I think DHS lost their street performers, too.

 

[larryz]

Sure. But this was a heavier blow than other years.

I also forgot, a Disneyland New Orleans Square band got cut too, right?

Disneyland Continues Changing Its Tune With Live Music at the Park [Alt-Disney] – OC Weekly

ocweekly.com

 

[Mickeyboof]

Disneyland Continues Changing Its Tune With Live Music at the Park [Alt-Disney] – OC Weekly

ocweekly.com

Disney purposely scheduling employees in a manor that ensures they will not receive benefits is absolutely disgusting.

Why do all soulless corporations have to be soulless corporations?

 

[ToTBellHop]

Whilst there is some truth in this, it is rarely to this extent. In 2016 after Shanghai’s costs overran, entertainment was cut similarly in the domestic parks. September was undeniably soft in the domestic parks and it was followed by the severest entertainment cuts since 2016. Star Wars was meant to boost attendance in September at WDW and it didn’t seem to have that impact. Have there been any announcements of new entertainment since the cuts? The cuts were likely to try to pad the bottom line after the difficulties of the GE launch.

They add a ton of seasonal entertainment going into Christmas. I’m curious to see if there are additions in January.

 

[WDW Pro]

In the past, they’ve closed blocks of rooms for “refurbishment” to improve the occupancy percentages. I’m not talking about the real refurbs at Pop, Yacht and Beach, etc. I’m talking about closed rooms.

I’m not suggesting this is happening now—it’s probably not—but I do raise an eyebrow when any company reports percentages rather than solid numbers.

This is absolutely occurring. It was a technique used in the late 2000's, but hasn't been used since.

1. No, it couldn't easily go over 90%. Those in the industry understand that hotel occupancy is red-lining at 90%. You can't go much higher than that at all. It's much easier for it to miss and settle down a few percentage points than it would be to exceed 90%.

2. Jacksonville Jaguars couldn't sell out their stadium for nearly a decade. As many know that meant the game was subject to blackout from local TV broadcasting. Someone decided to put tarps over huge sections of the stadium and suddenly they were "selling out" the stadium and the games could once again be broadcast. Similarly, Disney knows how to move numbers around like anyone else. Likely they are not counting all of the unsold DVC "rooms" at Riviera as part of their occupancy totals. So, at the moment they might just be counting purchased Riviera DVC holdings as "occupied" rooms. If so, that would make the number "100%" occupied of the rooms available. Additionally, they do not count areas they are refurbishing towards their totals. Room demand down? Time for a "refresh" of a wing of the hotel. Now it's not counted in the total.

3. I have seen some of the largest discounts on DVC rental web sites in the past few months. Some flash sales have offered rooms such as:

Saratoga Studio: $120 (multiple dates)
Saratoga Studio Preferred: $150 (multiple dates)
OKW Studio: $126, $139
OKW 1B Villa: $216 (multiple dates)
AK Studio: $99!!!
AK Savanna: $160
AK 1B Villa: $242 (multiple dates)

Those prices were offered by just one re-seller. Many more were offered at varied discounts by many other companies. Increasing hotel occupancy numbers by selling some at less than half the rack rate price (sometimes even 75% off) does not mean that they are in more demand than ever before. It means people like deals.


Another key point is that hotel occupancy does not indicate interest in the parks. Many, people stay in a Disney hotel without ever visiting the parks. Notice that they keyed in on hotel occupancy rates rather than daily park ticket sales numbers. Usually it's good to look at what big corporations don't focus on in their reports to find out what isn't doing so well, because if it was they would be talking about it.

Actions always tell you what an individual and a corporation believe. When you see cuts in entertainment more than usual, when you see hotel room deals that are suddenly out of this world... well, you know what that means.

And maybe get that self-serve condiments bar back at Casey's instead of thousands of plastic/metal packets getting tossed out every day from condiment packets that replaced it.

But, but, but, straws.

It appears there is extremism on each side. These results were an overall strong affirmation of the The Walt Disney Company’s direction. As we all know, we don’t care about the company generally (well maybe we do a little). We care about Disney’s Parks! Let’s get rid of the clutter, and zero in how they did.

Some people seem to be thinking that the division formerly known as Disney Parks and Resorts was about to collapse. This belief is held by those who are ardently anti-Disney, and not by most critics of the company. While many of the pro-Disney camp of posters would like it to be that simple, most worried about this year’s performance are not predicting the imminent collapse of Disney Parks. Their claim is that Star Wars Land failed to drive a positive consumer response and meaningfully improve profits.

Let’s see if that assertion is borne out. This graph represents the yearly Operating Income percentage growth for Walt Disney Parks and Resorts since 2010. (Please note, for FY 2019 it includes accounting for consumer products. While imperfect, Parks and Resorts dwarfs the new division. The Experiences division lives and dies by their parks)
View attachment 424123

As you can see, the average rate of growth has been at roughly 13.5%. At year end, FY 2019 posted yearly operating income growth of about 11%. While this quarter showed an acceleration in growth, the 17% improvement was juiced by beneficial accounting changes. Reports of drastic budget cuts and cost reductions were also in play, which are unsustainable in the longterm. The Disney Parks bulls would be quick to point out that Hong Kong Disneyland and the hurricane would act in the opposite direction, pulling down operating income growth. They’d be right too. While ambiguity looms, we can walk away with some solid facts.

1. Disney Parks had a soft year. Remember the articles that talked about how Disney Parks would need to be the growth driver? As the expenses associated with integrating Fox and starting the streaming service loomed, analysts calmed themselves with knowledge that Disney Parks would be growing at a rapid rate. Instead, we had the weakest growth since 2016. 2016 was the year that Disney opened Shanghai, which was extremely expensive and dragged down profits. While opening expenses for Star Wars Lands were incurred, Pandora and Toy Story Land both opened without subsequent drops in growth. Why the massive deceleration in profitability growth occurred remains largely mysterious. It started before Galaxy’s Edge, because people were putting off trips to attend Galaxy’s Edge. Then it continued after Galaxy’s Edge opened because they were afraid of crowds. Something really odd happened with 2019, and Disney needs to figure out what happened fast, before the same thing repeats in the future. “Disney’s Rock of Gibraltar” as one analyst put it, needs its mojo back.
2. Chapek needs operating income growth in the high teens next year. This was a sluggish year, but Disney really needs solid year over year growth to offset this. If for any reason Disney Parks fails to post growth similar to 2018 in fy 2020, Chapek may not be long with the Walt Disney Company. Iger runs a growth company, and this year’s performance is NOT acceptable.
3. While things are sluggish, things are not disastrous. There’s a big difference between not growing as fast as would be liked, and a contraction. This quarter does show some improvement, and should give the executive team room to breath.
4. Hong Kong Disneyland can’t catch a break. That poor park.
5. Shanghai and Paris have shown strength. I’ve been surprised at how slowly investments have been rolled out in those two resorts. While help is on the way, solid capacity additions are still years away.
6. Disney Parks are poised for a good 2020. If the international economy holds well, and the situation in China stabilizes, 2020 may be exactly what Chapek needs. This may be a BIG year. Everything is lined up- new attractions, greater capacity, and better cost controls.
7. Panic will be sounded throughout the company if RotR fails to lift attendance and improve the situation. While things are doing pretty well, this would be cataclysmic. Q1 and Q2 of 2020 are when we’ll really get to understand how the edges of the galaxy are doing.
8. Unbelievably, everyone was wrong. I myself predicted that Galaxy’s Edge would destroy every attendance record. Attendance went DOWN at the same time Disney increased capacity by 20% at the park. Disneyland Park was supposed to be seeing massive growth, but it did not. I’m still shocked. I was predicting since 2014 that this would be big. Instead it really didn’t do much. That’s not to say it can’t roar to life next year, but dang guys, Star Wars Land made attendance go DOWN. What are the odds? Haha Can we all laugh at the IP mandate for a moment. A land based on the irrelevant Avatar has managed to boost attendance more than STAR WARS. That’s loony.

Really, 2020 is when we’ll find out whether Chapek is the next CEO or if he’s on the way out.

Maybe the best post in the thread.

Thanks for your analysis. Great thoughts...... I agree with @AnotherDayAnotherDollar that Mayer is the next CEO. He has been ahead of strategy and Iger's most trusted adviser, involved in every acquisition since 2005. I just read Iger's new book, and Chapek is referenced (only) in the preface, regarding the opening of Shanghai and the Alligator attack. On the other hand, Meyer is in the book everywhere, and was involved in every big decision Iger has made as CEO. Meyer will be hard to unseat, as it appears Disney+ which Meyer runs, will be a home-run grand-slam. And while Bob Chapek is a great bean counter, he isn't my choice to run such an important segment/division let alone the entire company.

A couple of points which may affect your analysis of Parks, Experiences and Resorts for you to consider.

• This P,E & R division now houses 21CF consumer products, which are not yet producing any (or much) revenue (they will) in the Disney Model. This creates a "Law of Large Numbers" condition when comparing on a percentage basis (the Denominator has grown faster than the numerator). It is possible, if you removed the still integrating 21CF IP, the Operating Income % would match or beat the trend. We will see the change in $$ once the 10Q is released.
• The new Accounting Change (ASC 606) changes how, and where revenue is recognized. In the prior quarters, Consumer products recognized all of the revenue for licensed products (It say's in the earnings release, that prior quarters were not updated to reflect the new rule). Now the revenue is split between P, E & R, and which-ever division owns the IP. In effect, this may reduce the Operating Income Growth for P, E & R, but artificially inflate the comparison in Media, Studios, and Direct/International.

Again, Disney usually releases its 10Q within a Day of its Earnings.... They haven't yet, but it will likely include a great deal more detail, where we can expand the analysis.

I love your analysis, Great post!

Mayer would be the easiest, best-case-scenario transition for the company IMHO.

 

[Brad Bishop]

Disney purposely scheduling employees in a manor that ensures they will not receive benefits is absolutely disgusting.

Why do all soulless corporations have to be soulless corporations?

Actually - this makes sense. There's this idea that: "Well, we'll just pass a law and everyone will comply!" It doesn't actually happen like that, though. People work around the law. Nothing illegal about it. It's bad law to begin with. This is why you have people with two 29-hr jobs - because someone else thought it was important to force the employer to do something.

 

[Lilofan]

Actually - this makes sense. There's this idea that: "Well, we'll just pass a law and everyone will comply!" It doesn't actually happen like that, though. People work around the law. Nothing illegal about it. It's bad law to begin with. This is why you have people with two 29-hr jobs - because someone else thought it was important to force the employer to do something.

And with companies cutting full time hours to part time hours it makes the staff no longer eligible to apply for the FMLA leave benefit that one of the qualifications is that you have to work full time hours to even be considered before applying for FMLA.

 

[Mickeyboof]

Actually - this makes sense. There's this idea that: "Well, we'll just pass a law and everyone will comply!" It doesn't actually happen like that, though. People work around the law. Nothing illegal about it. It's bad law to begin with. This is why you have people with two 29-hr jobs - because someone else thought it was important to force the employer to do something.

Sure it “makes sense.” But it’s nevertheless disgusting. So American.

 

[Lilofan]

C

Sure it “makes sense.” But it’s nevertheless disgusting. So American.

Outsourcing work to third world countries, downsizing full timers to part timers to save on benefits and overtime, automate work instead of employing staff.. It's real, cruel and only going to continue.

 

[mikeximus]

Interesting conversation... I have read it all the way through. It is interesting to see the different factions arguing their points. For me, at the end of the day, Disney is a corporation, and their job is to keep the share holders happy. If the share holders are not happy, and start to dump stock, than something went wrong. If share holders are hanging onto their stock, and the stock prices are rising, than something good is going on.

However, at the end of the day, I think it's very naive of some people here to think that Disney doesn't manipulate data or play with wording, or even flat out lies on their quarterly reports. From a 2012 Business Insider article, they concluded that 20% of publicly traded companies are probably lying on their reports.

STUDY: 20% Of Companies Lie On Earnings Reports, Top Reason Is To Boost Stock Prices

www.businessinsider.com

One of the things I have noticed about Disney is that there are times when they want to talk up their quarterly reports in the share holders meetings, but, the wording gets changed for in the SEC filings... for example, back in Q1 2018 the report that Disney released to it's shareholders read as such:

The increase in theatrical distribution results reflected the success of Star Wars: The Last Jedi and Thor: Ragnarok in the current quarter compared to Rogue One: A Star Wars Story and Doctor Strange in the prior-year quarter. Other significant releases in the current quarter included Coco, while the prior-year quarter included Moana.

https://ditm-twdc-us.storage.googleapis.com/q1-fy18-earnings.pdf

The above differed from the SEC filing:

The increase in theatrical distribution revenue was due to the performance of Star Wars: The Last Jedi and Thor: Ragnarok in the current quarter compared to Rogue One: A Star Wars Story and Doctor Strange in the prior-year quarter. Other significant releases in the current quarter included Coco , while the prior-year quarter included Moana .

https://secfilings.nasdaq.com/filingFrameset.asp?FilingID=12522058&RcvdDate=2/6/2018&CoName=WALT%20DISNEY%20CO/&FormType=10-Q&View=html

I would hope most would catch the difference. Now, is this some huge crime or any crime at all for that matter? Obviously not! What it does show is that Disney is not above playing word games in order to fluff up it's share holders in an effort to not spook them or make them feel better about holding Disney stock.

The Last Jedi was a pretty divisive film among the Star Wars fandom, so it shouldn't be a shock that Disney would want to make sure their shareholders hear some positive information on that movie as opposed to all the online complaints they had been hearing for the previous two months before the end of the quarter. So a slight difference in what the share holders hear, compared to the report that is actually filed is as simple as saying The Last Jedi was a success, but that wording is missing in the SEC filing.

Again, I am not tying to insinuate a crime is being committed, however, for those that are so hell bent on protecting Disney's virtue, I would be wary to be so gung ho to do so. They are only telling the truth until someone catches them not telling the truth.

 

[MisterPenguin]

However, at the end of the day, I think it's very naive of some people here to think that Disney doesn't manipulate data or play with wording, or even flat out lies on their quarterly reports. From a 2012 Business Insider article, they concluded that 20% of publicly traded companies are probably lying on their reports.

So, are you saying that since a minority of corporations (20%) are *probably* lying on reports, then Disney *likely* is?