Disney’s Fiscal Full Year and Q4 2019 Earnings Webcast

[n2hifi]

Speaking of waste how about getting rid of the theme park paper towels to dry your hands and save millions of trees, and instead, put those hand air blow dryers as a substitute. Sound good?

Fine to offer both, but I will be snagging wads of napkins from the nearest restaurant before a bathroom trip if the paper towels go away.

I should clarify since this is a pet peeve of mine. Restrooms that have no doors - no problem, but I will not touch a door handle after washing my hands. Or they could install...

 

[seascape]

DVC rooms vs regular hotel rooms.

Under DVC rooms Disney is guaranteed a huge profit. The thing most people don't understand is each division od WDW makes a profit. Timeshares cover all costs including the Disney Transportation System. Thus DVC owners par their share of these costs even if they don't use them. They also pay for the magical Express regardless of if they use it or not. Finally they pay for the check in people, housekeeping and bell services, sll chargedvwith a profit built in. Then after 50 years of ownership they go back to Disney. Thus Disney makes all the profits and invested a absolutely nothing and they can them resell the points.

 

[tirian]

In order to make their room occupancy look better every quarter and year, then they would have to 'hide' not only the same amount of rooms by pretending they're under refurbishment, but do to so more and more. That is not feasible. It's a pretty dumb conspiracy theory.

Also, Disney would not expose itself to severe penalties for lying on financial statements.

It’s not a conspiracy theory; they actually did it for years between 2001 (understandable) and 2009. Then they did it again a few years ago.

And as I said, I don’t think they did that again. The point is that they have a history of adjusting things—anything—to report better percentages. When you only use percentages, you’re not lying.

It’s an old trick that anyone who actually works in the industry recognizes, similar to how Netflix self-reports its viewing ratings.

The cuts are the real giveaway that it was a rough year. Have our forums already forgotten about all the entertainment, frontline, and management cuts over the last year? How about how Powell was the scapegoat for the lackluster SWGE opening?

And now, people are defending poor practices and celebrating success because of an 8% reported rise?

Give me a break.

Disney isn’t going to make improvements as long as the fans accept cuts and higher prices.

 

[tirian]

I will agree Disney messed up SWGE big time at Disneyland. They tried to make up for their completely screwing up the construction of RotR at Disneyland and having to dely the opening. As a result, they opened up SWGE at WDW early, before it was ready. What was the result, no increase in attendance but lots of merchandise and food sales. Was this good or bad. Overall, it was bad but the results were better than they would have been if they hadn't opened WDW before it was ready to make up for their screw up at DL.

So where does that leave us going forward. I contend that SWGE will be the huge success everyone thought it would be and that the delay in the long run will be beneficial as they had a very long soft opening. You and others are free to believe I am wrong but time will tell who is right. If I am wrong I will admit it but I hope those on the other side will do the same. I can't wait to book the SW hotel, evrn though I was more a Trekie than a SW fan.

PS. I love the Orville, the true future of Star Trek.

I think SWGE is fixable and will be corrected.

I also love the Orville!

 

[tirian]

Speaking of waste how about getting rid of the theme park paper towels to dry your hands and save millions of trees, and instead, put those hand air blow dryers as a substitute. Sound good?

Way off topic, but I’ve been told those aren’t used because of disease control. For real. Plenty of airports use them, and plenty of scientific studies blame them for spreading diseases by blasting viruses into the air and into people’s faces.

Again, this is hearsay, but I’m just tossing it out as the reason I’ve heard. (The studies are real, though.)

Back to the topic at hand...

 

[Rodan75]

In order to make their room occupancy look better every quarter and year, then they would have to 'hide' not only the same amount of rooms by pretending they're under refurbishment, but do to so more and more. That is not feasible. It's a pretty dumb conspiracy theory.

Also, Disney would not expose itself to severe penalties for lying on financial statements.

Also they publish they available room nights in their earnings. Which eliminates this theory entirely. But it works as a talking point for folks who don’t actually do their homework.

 

[MisterPenguin]

Also they publish they available room nights in their earnings. Which eliminates this theory entirely. But it works as a talking point for folks who don’t actually do their homework.

Pfft... you don't understand the real genius of Disney: Anticipating poor reception to a new land based on poor reception to some movies, more than ten years ago, Disney embarked on a refurbishment schedule of all their resorts costing hundreds of millions of dollars just so they can include an artificial reduction of rooms in their occupancy calculus in order to tout a 5% increase in bookings to impress a few dozen investors. Totally worth it!

 

[VaderTron]

Pfft... you don't understand the real genius of Disney: Anticipating poor reception to a new land based on poor reception to some movies, more than ten years ago, Disney embarked on a refurbishment schedule of all their resorts costing hundreds of millions of dollars just so they can include an artificial reduction of rooms in their occupancy calculus in order to tout a 5% increase in bookings to impress a few dozen investors. Totally worth it!

What they actually are doing is throttling the needed maintenance and basing it off of room demand. They are way behind on refurbishments. Grand Floridian is disgustingly behind as a clear example. Disney will never catch up with all that needs to be refurbished at the rate they are going. By the time they are done the oldest refurbishments will need soft finishes again. What they do is press pause/play based on room demand in real time. It's not that hard to do.

 

[carolina_yankee]

I know you know better than that. Sure the contracts are sold but the rooms being unoccupied are not a good thing for Disney especially if the members used their points elsewhere.

Very few DVC rooms are unoccupied. On DVC forums there is plenty of conversation about exactly how hard it is to find availability at the 7 month window, particularly for studios. Between now and April, only a few resorts have any decent studio availability (more than a random night here or there).

The “flash sales” DVC brokers are offering are not due to low occupancy but due to there being random nights available and owners who are desperate to rent their points for whatever reason. If an AK studio is going for $99 a night, it’s because there is availability and somebody badly wants to offload their points for a given use year so they will rent at a massive discount.

I can assure you (I approved the ads on one forum) most DVC points and reservations are on offer for $17-$19 and even $20 a point on several DVC rental forums from owners who who are renting directly and not through a broker.

 

[DDLand]

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)

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.

 

[AnotherDayAnotherDollar]

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.

That's a good post. I don't think Avatar is irrelevant and I think Avatar 2 will surprise people at the BO. Reception for 3-5 will depend on the quality of 2, of course.

Chapek's 2020 will see if he's in the run or not, but IMO the CEO's position is Mayer's to lose.

If Disney+ does well in FY 2020, along with Hulu and ESPN+ then I think he gets it even if P&R has a great FY2020. ESPN+ got 2MM subscribers in 10 months (04/18 to 02/19) then another 1.5MM in the next 8-9 months (up to end of FY19), so good growth so far even if the sports line up is just okay. Hulu is kinda stuck at 28-28.5MM, but they have just recently took control. No numbers or guidance given for Disney+ so far, but they seem bullish about it.

And I think by the end of next year we should be hearing about who it'll be whether officially or unofficially.

 

[bartholomr4]

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.

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!

 

[Sir_Cliff]

Thanks for an excellent post!

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.

I think that comparison to Pandora highlights what is most curious about this situation. Without getting into the long debates on the health of the Star Wars franchise, it's hard to imagine that Star Wars is not only a weak draw put potentially off-putting for casual park goers when compared to Avatar as an IP. In my case (and I'm sure many others), the Avatar tie-in was in fact a barrier to getting enthusiastic about the new land at AK. However, you would generally expect any kind of addition of this size and scope should increase interest, whether there is an IP involved or not. That was weirdly borne out by a land based on Avatar but not one based on Star Wars.

In the short-term, the prognosis would surely have to be that they could have saved the hundreds of millions they spent on the land, continued with usual price increases, run a standard summer marketing campaign, and achieved a better overall result. As you say, SWGE may roar to life with ROTR next year, in which case they'll likely conclude that they fumbled the opening of the lands. Even if that is the case, though, I would find it hard to imagine that a big part of the reason growth was relatively soft following SWGE's opening was that Disney got too aggressive with their pricing strategy and this was compounded by a degree of arrogance regarding what they felt they had to offer in return. Hopefully that is at least part of the takeaway, but we'll see.

While I agree that it doesn't seem to be a DLP in 1992-scale disaster for the parks, something unusual is certainly going on here.

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

If I were a betting man and those are the only two options, I know which I'd be putting my money on!

 

[Lilofan]

Mayer looks like a good bet on being considered the next CEO when Iger leaves in 2021. It's one thing for Iger to groom and recommend. It's another thing if the Board share the same viewpoint or else they will look for an external candidate which is many Disney fans fear. When Rasulo and then Staggs realized they were not going to get the job they left but not without a generous package. If Mayer doesn't get the job he probably will do the same.

 

[mikejs78]

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.

Great analysis, although I don't think Chapek is really poised for the CEO role. I agree with others here that Mayers is going to get the nod and Chapek will be on his way out in a year or two, regardless of Disney Parks performance.

One of the things that may explain the difference between when Pandora and TSL opened and when Galaxy's Edge opened is the pricing. Disney engaged in fairly substantial price increases in the leadup to Galaxy's Edge, and that (turning people away) combined with the more substantial operating cost of GE could have contributed to the lower growth.

I do suspect that 2020 will likely be a return to form for growth for the domestic parks, provided that the economy does well and RotR is as good as it's being hyped as....

 

[DDLand]

• 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.

Thanks for the post! Yeah, I guess it may just be a wash. The DVC and ability to take profits on unreleased films is a positive, but as you point out, they also transferred some revenues to other divisions.

 

[MisterPenguin]

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.

I would add to this some more points to consider:

This 'parks segment' is very large. Not only is it combining foreign and domestic parks (which used to be separate items), and all the resorts and DVCs, it includes all of merchandising, and all the cruise lines (and the islands they now own), and their tourism industry (Adventures by Disney). So, it becomes increasingly difficult to tease out how individual parks are doing.

In the past few years when Iger has been asked about getting more "yield" from the parks, he said that there is room for that, but implicitly acknowledged that that can only go so far. As Disney has been raising prices to get more yield and control peak over-crowding, it's going to hit a limit. That means that *growth* in profit will have to level off. That means they can't keep up at 13% growth unless they can squeeze 13% more customers into the parks year after year, or raise prices 13% year over year, and that is untenable. The parks segments generates huge profits, but those profits can't grow at that rate forever. At some point Disney will have to settle for just a few billion dollars profit every year and cope with that unfortunate situation.

The Star Wars saga is still unfinished business. People planning vacations around the opening of SWL in DHS were told a year ago that SWL wouldn't even be open yet at this time in DHS ("Late Fall 2019"). The unexpected early opening with only one ride is a poor gauge for how the land will ultimately perform in DHS. Likewise, the crowd controls implemented in DL when SWL opened there leaves a huge question mark about what caused the lack of overwhelming crowds... and not only just for SWL, but DL itself was a ghost town. So, how does disinterest in a new land mean people stop visiting the castle park? Was it the land or the crowd controls? Crowds came back to the domestic parks this October and the SWLs are as filled with people as any other 'land.' And so, while they didn't replicate the Harry Potter openings, there were a lot of major differences to make them incomparable.

 

[Sonconato]

Way off topic, but I’ve been told those aren’t used because of disease control. For real. Plenty of airports use them, and plenty of scientific studies blame them for spreading diseases by blasting viruses into the air and into people’s faces.

Again, this is hearsay, but I’m just tossing it out as the reason I’ve heard. (The studies are real, though.)

Back to the topic at hand...

Yes. I got ringworm from one. Never had it before in my life and then I use one of those and there it is. I refuse to use them and would rather have my hands wet.

 

[Brad Bishop]

The problem with Disney is becoming too big and unfocused. Like any conglomerate the wheels usually come off down the road because accountants have no vision. That's who ends up in charge.

Disney tried to get into online streaming and lost a good amount of money on it in the past. We'll see if they can roll that out as a success?

In my opinion Disney is neither a buy or a sell right now. It's a hold if you own it.

Yep. This is what I think is happening. Of course, those who look through the rose-colored glasses will deny it because Disney is so big.

Apple has the same problem. Vision is gone and now the new product is high priced dongles / accessories.

People will spout, "Oh, but <insert company> has money which it can live on for decades!" That's fantastic! You can witness a slow death like Sears (which is still around - try to find someone who shops there, though).

It's a company. Disney has hit the skids before. They've thought about selling off their parks before (Imagine if the OLC bought them - that actually might be a win). Right now their focus is: bottom line.

All of those purchases before need to pay off and pay off soon. Marvel has. Star Wars? It's faltering. Fox? I'm not sure what they're doing there.

It appears as though the farm is being bet on Disney+ right now. I'm sure hard core Disney fans will line up to buy it with it's censored content as to not offend anyone. The rest? I'm not so sure.

 

[Magenta Panther]

That's +8% revenue over last year's last quarter, and +6% over the past year..

However it's +17% net profit over last year's last quarter, and +11% profit over the past year.

Many online articles mention how Disney exceeded Wall Street's expectations. So, how are people trying to make this out to be a bad thing?

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