Spectator Guide to Disney's Q3 20 Financials


Original Poster
In the history of Disney, this will be one of those historic financial quarters. This the equivalent of an 1880’s cargo sailing ship in a gale force storm. Leadership is critical and Disney will not emerge unscathed. So here are some things to watch for when they report.

The first is Operating Income by Segment. Disney has four business segments that will be reported:

  • Media Networks. This is ABC and the Cable channels but mostly ESPN. ESPN pays a lot of money for sports like the College Football Playoffs, MLB, NBA and the NFL among others. Just these four sports cost over $5B annually. It would be hard for Disney to get money back but I am sure they are trying. The Q2 March 2020 financials said Disney had Operating Income of $2.4B in this segment. Watch Media Networks to see the impact of no sports and lower advertising. Will it be a loss or did this segment stay above water?
  • Parks and Recreation. The parks have been closed and the cruise ships docked. Where is the revenue now? The Q2 March 2020 financials said Disney had revenue of $5.5B with Operating Income of $639M. Did Disney shut down the costs fast enough? Watch for how big the Operating Income loss is in this segment.
  • Studio Entertainment. This is the movie business which had nothing in this quarter. In Q2 March 2020 they had revenue of $2.5B and an Operating Income of $466M. The same question here as for the parks, did they shut off cost fast enough? This will probably be another segment with a loss, but how big?
  • Direct to Consumer. This is Hulu, ESPN+ and Disney+. Revenue here should be higher than the $4B reported last quarter. The problem is they also reported an Operating Income loss of $812M. This segment was not projected to make money for a couple more years. There will probably be a loss in this segment as well despite higher revenue.
So the first thing we are looking for is did Disney generate any positive income from any of these segments or was it an across the board massacre? Even two segments positive is a good sign.

The second area to watch is did Disney generate enough money to even pay the interest on the debt? You want to see Earnings Before Interest and Taxes (EBIT) be high enough to comfortably cover the $300M in interest due each quarter. Disney had about $1.3B in EBIT last quarter based on $2.4B in Operating Income. Disney may not have made enough money to cover interest costs. We will see.

The third area to watch is the relation between current assets and current liabilities. Current assets are mostly cash and account receivables. Current liabilities are mostly accounts payable and the debt principle repayment. Disney had a 94% ratio, meaning they owed a bit more than they had. How much cash did they spend to keep going? Can Disney meet current obligations without borrowing more?

Disney will go through massive layoffs, savings and more borrowing to keep going. The loss of talent and resources will hurt the 5 year capital expenditure plan. To keep the magic alive, they will need to do fewer things with higher quality. The question is how many fewer things are we looking at?

Let’s see how bad this is on August 4.
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