Disney’s Q2 (Jan/Feb/Mar) FY 2020 Earnings Results Webcast on Tuesday, May 5, 4:30ET

[Imagineer45]

I think it’s time - now that the Economy is wrecked - for society to educate ourselves and learn what goes on behind under the skin.

I looked for truth a little during the dot.com crash (it was lies)...and really got scared again and did a lot of recreational reading of theory and governance after the housing crash (shocking...it was again lies...just bigger)...

Enlightening.

Anyway...as to the bolded statement: that money is gone...because companies can’t help themselves.

Stock buybacks...dividends...huge investment in takeovers and buyouts...

Normal stuff.

I cited net income only to show how recoverable $3.75 billion is to Disney, not to act as if it is in a bank, I apologize for any confusion. However, Disney did have roughly $12 billion of liquidity available at the beginning of April, so they will be fine.

The example are airlines...$48 billion in stock buybacks over 5 years and record compensation and payouts...one week of airline lockdown and they went straight to DC and begged and received $50 billion in free cash...

You could literally count how long the turn took in minutes.

I feel like airlines get unfairly called out. There fixed costs are naturally extremely high and their demand plummeted from all-time highs to zero within a couple of weeks. United said they flew more passengers on any single day in May last year than they will for the entire month of May this year. American had $8.4 billion of liquidity in March, United had $9.6 billion as of April, and Delta is expecting $10 billion in June, which is in line with similarly valued companies. Having enough cash to weather this storm would have resulted in each of them casually sitting on $20 billion at all times, which is fiscally irresponsible for a public company of their respective sizes. Breaking down the bailout, $25 billion is in grants entirely for the airlines to pay all employees, the vast majority of whom they were planning on furloughing/firing, at current levels, so it is really just indirect unemployment benefits. It is divided among the airlines proportionally to payrolls. The other $25 billion is in loans primarily so the airlines will continue to maintain service to every single existing domestic destination, many of which they were planning on cutting due to demand, to ensure reliable, fast transportation across the country. All of the money also comes with strings attached, such as no pay raises for those making above $425,000 individual salary caps at $3 million, the ability for the government to purchase shares at an artificially lower price, and no stock buybacks or dividends until 12 months after everything is fully repaid, which should be within 5 years. It is an easy target because it is a lot of money, but each of the big three airlines individually has about $40 billion in annual expenses, and the alternative was having skeleton operations, if any passenger operations, with layoffs totaling north of one million.

 

[Lilofan]

Disney's Hollywood Studios VP Phil Holmes to Retire in August

Walt Disney World news, photos, and reviews! We provide you with daily news from the Walt Disney World theme parks and beyond

blogmickey.com

Any other execs " retiring " in the near future with the unsure economic outlook?

 

[seascape]

When Shanghai opens, it will be the end of a 15-week closure. Assuming the same for the domestic parks is a $3.75 billion cash burn at the $250 million per week rate. It is definitely a ton of money, so luckily the company made a net income of over $11 billion last year.

I am shocked they still cannot make money off of D+ with 50+ million subscribers. For comparison, Netflix has 167 million subscribers and had a net income of over $1.8 billion last year. Yes, they charge almost twice as much, but they are also making a lot more content and paying licensing fees Disney does not have to. Netflix was making over $100 million in net income at this number of subscribers.

What makes you think Disney Plus doesn't pay the studios for their content. Netflix was paying Disney various studios 300 million a year plus buying the Marvel Shows. You can count on the fact tgat Disney Plus is actually paying more. As I tried to explain before, Disney can be making more money with Disney Plus than they were with Netflix and still have Disney Plus show a loss. Look at it this way, Disney Plus now has 54.5 million customers paying just over $5.00 a month. That brings in 272.5 million a month. Out of that they are paying for new shows, Disney Plus exclusives and the rights to the various libraries. So, suppose they are paying 150 million a month on new shows and 200 million a month for the libraries. That does not even cover operating costs or start up costs but the loss of about 400 million in the quarter ignores the fact that 600 million was paid to the studios for their libraries vs the 75 million Netflix was paying so their profits were actually 125 million higher than they would have been under the old Netflix contract. The numbers I used werevfor comparative purposes only and are not the actual numbers.

 

[bartholomr4]

I am shocked they still cannot make money off of D+ with 50+ million subscribers. For comparison, Netflix has 167 million subscribers and had a net income of over $1.8 billion last year. Yes, they charge almost twice as much, but they are also making a lot more content and paying licensing fees Disney does not have to. Netflix was making over $100 million in net income at this number of subscribers.

Remember Disney+ isn't even a year old. I suspect Disney+ is covering its "direct expenses" but will take awhile to cover the "indirect" expenses related to a start-up and expansion into other countries. You could stop this spending, to "turn a profit" but that seems short sighted. Netflix did not have 55 million subscribers in its first 6 months.

 

[bartholomr4]

Ok, here's a transcript:

Q from Alexia (Cudron?) from J.P. Morgan:

...just following up on your comments on the parks: I was wondering if you could tell us or speak generally about what capacity you guys can operate the parks capacity which I know is very closed and we can't pinpoint that right now in terms of the domestic opening but try to get it done so what sort of capacity can get you to profitability.​

A: From Chapek:

In terms in how we look at our park reopenings and what hurdle we need to meet to make it make sense we actually look at it as a positive net contribution to overhead and profit. In other words, it's not about breaking a point for profitability necessarily but just making a positive contribution at the net contribution level.​

So, what we're thinking is that while every site is completely different; that's the approach we're going to take, and frankly, we would not reopen any park unless we can make it at least a positive contribution to that overhead and operating profit level.​

I believe @GoofGoof's explanation works...

As an FYI, a Bank of America Analyst on CNBC this morning stated they think this "net contribution" attendance level needed to break even for the North American parks is somewhere between 28 and 30 % of Park Capacity.

 

[GoofGoof]

As an FYI, a Bank of America Analyst on CNBC this morning stated they think this "net contribution" attendance level needed to break even for the North American parks is somewhere between 28 and 30 % of Park Capacity.

The only problem is nobody knows what that park capacity number actually is. Do they need 30% of the max capacity or 30% of the average day’s attendance. For a park like MK their average daily attendance is probably only about half the max capacity so if it’s 30% of max capacity that’s still a drop over a normal day but might look more like a Wednesday in Sept or Jan. If it’s 30% of avg daily attendance that is a very empty park. My guess is if it’s coming from an analyst they are talking 30% of the normal run rate. They just keep dropping the attendance number down in their model until the bottom line goes negative.

 

[GoofGoof]

My opinion is dividends should be outlawed because they no longer meet the standards they were being Made for...

But everyone loves a dividend! It’s “free money” as a reward for making free money

And I agree with you that you can’t take away a whole $0.88 a share without offering blood and vestal virgins to the street as a sacrifice...

I’m fine with dividends as a way to return excess cash to shareholders. I think we should go back to the early 80s rules when it was illegal for a company to buy its own stock. I’m not allowed to buy a single share of my company during the quarterly blackout period (last day of a quarter until we file our 10Q/10K) because I have access to non-public financial information but my company can buy its own shares back during the same times. Stock buybacks combined with executive stock options drive the short term decision making that plagues corporate America.

 

[Sirwalterraleigh]

I’m fine with dividends as a way to return excess cash to shareholders. I think we should go back to the early 80s rules when it was illegal for a company to buy its own stock. I’m not allowed to buy a single share of my company during the quarterly blackout period (last day of a quarter until we file our 10Q/10K) because I have access to non-public financial information but my company can buy its own shares back during the same times. Stock buybacks combined with executive stock options drive the short term decision making that plagues corporate America.

I’d settle for that...I don’t think there’s any legitimate way to justify buybacks. It’s basically cooking your own books...

Dividends were a mechanism to raise new capital for factories, growth, new product development, etc. a giveback when the stockholders contributed to company growth. Very much not now.

But I can live with that...the buybacks seem crooked from the jump. Things changed in the late 90’s on the street and there’s only been bigger calamities and bubbles since.

 

[CastAStone]

As an FYI, a Bank of America Analyst on CNBC this morning stated they think this "net contribution" attendance level needed to break even for the North American parks is somewhere between 28 and 30 % of Park Capacity.

Epcot runs below that for at least half the year.

A Bank of America Analyst who goes on CNBC needs to check his work.

 

[CastAStone]

As an FYI, a Bank of America Analyst on CNBC this morning stated they think this "net contribution" attendance level needed to break even for the North American parks is somewhere between 28 and 30 % of Park Capacity.

Epcot runs below that for at least half the year.

A Bank of America Analyst who goes on CNBC needs to check his work.

I'm sorry this is such a ridiculous estimate I need 2 posts to complain about it (no offense @bartholomr4 I know you're just the messenger)

In 2002, after 9/11, Disney averaged 103,000 guests/ day across the 4 parks. Estimates to capacity vary but I've seen anywhere from 300,000 to 350,000 guests across the 4 parks, which puts attendance at somewhere around 32%. Disney made an 18% profit on their parks business that year.

I realize 2020 is not 2002 but we're not talking about making an 18% profit, we're talking about the line where they lose less than the $150-$250 million dollars a week they're losing with the US parks closed.

 

[peter11435]

Epcot runs below that for at least half the year.

A Bank of America Analyst who goes on CNBC needs to check his work.

I feel like Bank of America is likely basing their numbers as a percentage of average daily attendance and not full park capacity.

It’s also likely this is how Disney itself will handle it too somewhat. For example if EPCOT opens and limits its attendance to 30% of its full capacity the result will still be one of the busiest days you’ve seen at the park. If trying to slow crowds the cap needs to be based on average attendance not max capacity.

 

[CastAStone]

I feel like Bank of America is likely basing their numbers as a percentage of average daily attendance and not full park capacity.

It’s also likely this is how Disney itself will handle it too somewhat. For example if EPCOT opens and limits its attendance to 30% of its full capacity the result will still be one of the busiest days you’ve seen at the park. If trying to slow crowds the cap needs to be based on average attendance not max capacity.

This would make way more sense.

 

[bartholomr4]

The only problem is nobody knows what that park capacity number actually is. Do they need 30% of the max capacity or 30% of the average day’s attendance. For a park like MK their average daily attendance is probably only about half the max capacity so if it’s 30% of max capacity that’s still a drop over a normal day but might look more like a Wednesday in Sept or Jan. If it’s 30% of avg daily attendance that is a very empty park. My guess is if it’s coming from an analyst they are talking 30% of the normal run rate. They just keep dropping the attendance number down in their model until the bottom line goes negative.

The analyst was referring to both the Shanghai max capacity to start at 30% and the comment by Chapek that they would likely start out at WDW at 50%. I interpreted her to say the % is of what the parks would normally generate. Because this is related to stock analysis, her statement was made as a % of normal revenue. She is also assuming revenue to pay for what Disney would have to spend to generate it or direct expense (the cost of the cast member, and the bun and the hot dog the customer is buying). It wouldn't include indirect expenses (the cost of the maintenance of the building, the carpet on the floor, the paint on the wall, etc.).

 

[GoofGoof]

The analyst was referring to both the Shanghai max capacity to start at 30% and the comment by Chapek that they would likely start out at WDW at 50%. I interpreted her to say the % is of what the parks would normally generate. Because this is related to stock analysis, her statement was made as a % of normal revenue. She is also assuming revenue to pay for what Disney would have to spend to generate it or direct expense (the cost of the cast member, and the bun and the hot dog the customer is buying). It wouldn't include indirect expenses (the cost of the maintenance of the building, the carpet on the floor, the paint on the wall, etc.).

When did Chapek say 50% at WDW? I missed that part.

 

[bartholomr4]

When did Chapek say 50% at WDW? I missed that part.

In the earnings Q&A.

 

[GoofGoof]

In the earnings Q&A.

I’m still not seeing them talking about a specific percentage for WDW. This was the question where they talked about Shanghai:

John Hodulik

Hey, great. Thanks. Maybe two quick follow-ups on the park and then a second question. First, can you tell us what the capacity limitations are on the Shanghai park when you guys open up next week? Number two, anything you can tell us about U.S. parks attendance in terms of what percentage of typical attendees say in 2019 drove versus flew, trying to get a sense for how many of the visitors are local versus from say out of state? And then second question is there anything you could tell us on sort of ad revenue trends in April or thus far in May that would be great? Thanks.

Lowell Singer

Okay. Thank you, John. Bob, do you want to take the parks questions and then Christine, do you want to take the ad trends question?

Bob Chapek

Sure. You got it. In terms of Shanghai Disney Resort, our capacity tends to be 80,000 a day. The government is putting a limit on that. Roughly they want us to be at about 30% of that. So it’s 24,000 a day. We’re going to actually open up far below that just to have our training wheels on with our new procedures and processes to make sure we don’t have any lines backing up either as guests entering into the park or as they wade through the park. So we’re going to approach that very, very slowly. But after a few weeks we will actually be up to what the government’s guideline is and at that point there could be some lifting of even those restrictions of the 30%. So those are the metrics there. In terms of U.S. park attendees, it really depends on which part you’re talking about. Obviously, the Anaheim Park has much more of a drive-in market and lot less folks that stay overnight a lot less guests that stay overnight where Orlando has a big predominance of folks that actually – families that actually fly in to go visit there, but we have a fairly robust annual pass program at both parks and a big drive-in market as well, but it’s significantly different in terms of the overnight guests and those that might fly in Orlando.

 

[Lilofan]

I’m still not seeing them talking about a specific percentage for WDW. This was the question where they talked about Shanghai:

John Hodulik

Hey, great. Thanks. Maybe two quick follow-ups on the park and then a second question. First, can you tell us what the capacity limitations are on the Shanghai park when you guys open up next week? Number two, anything you can tell us about U.S. parks attendance in terms of what percentage of typical attendees say in 2019 drove versus flew, trying to get a sense for how many of the visitors are local versus from say out of state? And then second question is there anything you could tell us on sort of ad revenue trends in April or thus far in May that would be great? Thanks.

Lowell Singer

Okay. Thank you, John. Bob, do you want to take the parks questions and then Christine, do you want to take the ad trends question?

Bob Chapek

Sure. You got it. In terms of Shanghai Disney Resort, our capacity tends to be 80,000 a day. The government is putting a limit on that. Roughly they want us to be at about 30% of that. So it’s 24,000 a day. We’re going to actually open up far below that just to have our training wheels on with our new procedures and processes to make sure we don’t have any lines backing up either as guests entering into the park or as they wade through the park. So we’re going to approach that very, very slowly. But after a few weeks we will actually be up to what the government’s guideline is and at that point there could be some lifting of even those restrictions of the 30%. So those are the metrics there. In terms of U.S. park attendees, it really depends on which part you’re talking about. Obviously, the Anaheim Park has much more of a drive-in market and lot less folks that stay overnight a lot less guests that stay overnight where Orlando has a big predominance of folks that actually – families that actually fly in to go visit there, but we have a fairly robust annual pass program at both parks and a big drive-in market as well, but it’s significantly different in terms of the overnight guests and those that might fly in Orlando.

That is a first that an executive divulged the secret attendance capacity numbers.

 

[Sirwalterraleigh]

I wouldn’t trust any analyst that uses the word “capacity”

That’s a floating scale based on staffing and supply outlays and they are never at it or close...

This is my rub too with the “the parks are packed!!”
No...they don’t have enough stuff to make it easy on those in it as they squeeze margins...that’s a different concept entirely.

All prognostication should use the term “attendance goals/limits”

And the analyst is wrong to suggest such low numbers do anything for the bottomline anyway...

It takes a large part of the operation to turn the profits when yuh consider all the employee costs required and shared...aka not tied directly to a specific park location.

 

[Sirwalterraleigh]

That is a first that an executive divulged the secret attendance capacity numbers.

I know...it’s stunning they even gave a number at all.

 

[DCBaker]

I’m still not seeing them talking about a specific percentage for WDW. This was the question where they talked about Shanghai:

Was it this?

"Michael Nathanson -- MoffettNathanson -- Analyst

Thanks. I have two. One is, I wonder, for Bob Chapek. How do you staff the parks in anticipation of an opening? What signals do you look for and what drives your optimization? Is it the number of basically the experience you want to have measure up to a park at full opening? So any type of signals, any type of history you have to staff up in anticipation of an opening. That's one.

And then two for Christine, in answering Ben's question you were helpful in giving us the impact from COVID. But then you guys furloughed employees in April. So how would that answer change furloughed employee world. So how much of the cost base becomes variable post the furloughs? So those are my questions."

Bob Chapek -- Chief Executive Officer

"Yeah, in terms of the signals we look for park opening, our hypothesis is because of pent-up demand that if we open up at something less than 50% of our standard capacity that we're probably not going to have trouble filling that. So whatever level we stage that out, whether it's 10%, 25% or 50% of typical crowds, that's what we'll be able to have at our park. Therefore we will staff accordingly to that type of level, whatever that level will be eventually.

In terms of optimization and sort of how we'll approach that, obviously labor is a huge component of our cost base and so that will slide with the attendance. And that's why I said when we're looking at the decisions for what that level would be inside the parks and what we're going to be targeting for, it's really looked at as a contribution to net contribution and profit as opposed to saying that we're going to sort of cover the entire [Technical Issues]. Therefore, that gives us the ability to make our decisions on a variable basis and keep as much of that cost structure variable as possible. Obviously, we'll practice a yield strategy overall just like we always have."