TWDC reports third-quarter profits

[CaptainJackNO]

Disney, along with many other companies are wanting to run asset-light. The parks division is capital intensive and has a great deal of exposure to the economy. Imagine if another 9/11 happened tomorrow...

They are wanting to focus on creating content and collecting a check - Marriott in 1993 and Starwood in 2006 are good examples of companies divesting themselves of assets while continuing to collect royalties, and in some cases, a management fee as well.

With all due respect, I think many people are over-emphasizing this rumor, and under estimating the value of the Parks Division. While the parks and resorts division is capital intensive, so is every other aspect of TWDC. That is business. No business can succeed without capital investment. You really cannot compare Marriott and Starwood to the Parks and resorts division as the nature of the business is very different, as you all know.

Here's what I see. I see that the parks and division made up slightly over 1/3 of the business' profit. While this came from all parks and resorts, it's still 512 million dollars out of 1.5 billion, and that's profit. Someone mentioned the 40 million dollar investment in FLE. Ask yourself how many times Disney undertakes such a large expansion. And, this investment will cause somewhat of a spike in attendance, especially from people like us because we will want to see it. To make money you have to reinvest.

Also, and I acknowledge that this is less of a factor than profit, obviously, Disney will take huge hit in the U.S. if they sold this company to a foreign entity. The pressure from fans and US citizens will be bad enough. But, the worse pressure and criticism will be from the media, especially given the financial state of the U.S. economy right now. Outsourcing a traditionally American product and symbol to a foreign corp., especially a Chinese or Middle Eastern one, will be a long term mistake for the company. And, the comparisons of other corporations to Disney are not possible, unless you are talking about Coca-Cola, or John Deere, but even those companies do not have quite the attachment to the nation, as a whole, that Disney does. I just do not see TWDC selling off parks and resorts as they are the vehicle that helps drive their brands and supports their movies. And, there is no way they would see 512 million in profit just from a consulting and design position. Remember, once the profits are announced, all the costs some of you say they want to get away from are already deducted.

But, if all else is disagreed with, I think this point no one can argue with. Given the state of the global economy, there is no way any corporation is going to shell out the billions necessary to purchase the Parks and resorts division because there is no way of knowing what turn the economy may take within the next few years.

Like others, and I know the reliability of Lee and I would never question him, I believe that it is much more possible that these potential investors were there to discuss future investment in parks overseas. How does one of the largest corporations in the world sell off 1/3 of its annual profit and corporate base for a 2 day bump in stock prices? Unless the big wigs sell of parks and resorts, wait for the stock to soar, sell off all their shares, then retire. Ultimately, I do not think this is what was going on. How does this company sell 43 square miles of prime Florida Real Estate, with the parks included? I am sorry, it just does not, to me, make business sense.

 

[Ignohippo]

With all due respect, I think many people are over-emphasizing this rumor, and under estimating the value of the Parks Division. While the parks and resorts division is capital intensive, so is every other aspect of TWDC. That is business. No business can succeed without capital investment. You really cannot compare Marriott and Starwood to the Parks and resorts division as the nature of the business is very different, as you all know.

Here's what I see. I see that the parks and division made up slightly over 1/3 of the business' profit. While this came from all parks and resorts, it's still 512 million dollars out of 1.5 billion, and that's profit. Someone mentioned the 40 million dollar investment in FLE. Ask yourself how many times Disney undertakes such a large expansion. And, this investment will cause somewhat of a spike in attendance, especially from people like us because we will want to see it. To make money you have to reinvest.

Also, and I acknowledge that this is less of a factor than profit, obviously, Disney will take huge hit in the U.S. if they sold this company to a foreign entity. The pressure from fans and US citizens will be bad enough. But, the worse pressure and criticism will be from the media, especially given the financial state of the U.S. economy right now. Outsourcing a traditionally American product and symbol to a foreign corp., especially a Chinese or Middle Eastern one, will be a long term mistake for the company. And, the comparisons of other corporations to Disney are not possible, unless you are talking about Coca-Cola, or John Deere, but even those companies do not have quite the attachment to the nation, as a whole, that Disney does. I just do not see TWDC selling off parks and resorts as they are the vehicle that helps drive their brands and supports their movies. And, there is no way they would see 512 million in profit just from a consulting and design position. Remember, once the profits are announced, all the costs some of you say they want to get away from are already deducted.

But, if all else is disagreed with, I think this point no one can argue with. Given the state of the global economy, there is no way any corporation is going to shell out the billions necessary to purchase the Parks and resorts division because there is no way of knowing what turn the economy may take within the next few years.

Like others, and I know the reliability of Lee and I would never question him, I believe that it is much more possible that these potential investors were there to discuss future investment in parks overseas. How does one of the largest corporations in the world sell off 1/3 of its annual profit and corporate base for a 2 day bump in stock prices? Unless the big wigs sell of parks and resorts, wait for the stock to soar, sell off all their shares, then retire. Ultimately, I do not think this is what was going on. How does this company sell 43 square miles of prime Florida Real Estate, with the parks included? I am sorry, it just does not, to me, make business sense.

I agree with absolutely everything you've said. It makes sense they'd be looking for outside investors to incur some of the start up costs for new parks (and cruise ships) internationally. Selling the parks division would be a complete PR disaster for not only Disney, but more so for whoever would buy them. Besides, as others have stated, the parks are too important for to the company in helping to drive the other businesses (whether it's film or merchandising).

 

[devoy1701]

I've said it many times and have studied the annual reports of the last 3 years. The Parks & Resorts are not nearly as profitable as you think. They make up less than 20% of the company's annual income, has a lower margin than other divisions of the company, and is the only business segment that has continued to shrink YoY for the past 3 years.

For many corporations this forms the perfect equation for a business segment that could be spun off.

 

[menamechris]

I've said it many times and have studied the annual reports of the last 3 years. The Parks & Resorts are not nearly as profitable as you think. They make up less than 20% of the company's annual income, has a lower margin than other divisions of the company, and is the only business segment that has continued to shrink YoY for the past 3 years.

For many corporations this forms the perfect equation for a business segment that could be spun off.

However, does not take into account that a purchase of this sort would make virtually no business sense for any other company. By the time they made the initial $30 Billion+ purchase, then continue to pay licensing fees, purchase new entertainment packages from the Disney Company (which they would be contractually obligated to do), pay whatever other rental/leasing fees Disney could demand, there would be virtually no profit for them. The few mega-entities that could handle a purchase of this magnitude did not get in that position by making risky, economic-driven, and "all-in" acquisitions like this. Some may play with the idea - and Disney may fancy the occasional proposition or offer, but the bottom line is that we should be scared of any company or group that would essentially be buying the parks "for the heck of it..."

 

[tirian]

Disney was the biggest loser on Wall Street today.


Here's the MSNBC article.

 

[Lee]

Just tossing in...

-Why meet in Florida? I'm told the entire board had to get in one place in order to come to a formal "understand" or "agreement" to actively offer to sell all or part of the division.

-Why would they do it? Many reasons, some of which have been said here. Parks are a risky proposition, subject to the whims of the economy and requiring a heavy dose of expenditure every year. We know how much Disney likes to sit back and get a check. The deal with OLC has done quite well for them, and a similar model would be successful here if they could find a qualified buyer.

-Public reaction? Nah. I don't think it would be too huge beyond the fan community. Even then there are those among the hardcore fans lookaroun)that would welcome a company like OLC and the quality they bring to the table.
And Wall St would love it.

-Outside investors. They really don't need any more investors for the foreign parks. Every one of them is mostly owned by an outside interest, be it the Chinese govornment or Euro Disney SCA. Seeing as how there are no more parks on the horizon in other places...I don't see what investment they would be looking for overseas.

All the info I have received points to the Board gathering in Florida to approve the plan to entertain offers for the division, and to formally meet with two potential buyers, one Saudi and one Chinese.

So far, nothing has happened. Neither buyer was interested. All our speculation is just that at this point, and it all seems moot until a real buyer comes along.

 

[CaptainJackNO]

Just tossing in...

-Why meet in Florida? I'm told the entire board had to get in one place in order to come to a formal "understand" or "agreement" to actively offer to sell all or part of the division.

-Why would they do it? Many reasons, some of which have been said here. Parks are a risky proposition, subject to the whims of the economy and requiring a heavy dose of expenditure every year. We know how much Disney likes to sit back and get a check. The deal with OLC has done quite well for them, and a similar model would be successful here if they could find a qualified buyer.

-Public reaction? Nah. I don't think it would be too huge beyond the fan community. Even then there are those among the hardcore fans lookaroun)that would welcome a company like OLC and the quality they bring to the table.
And Wall St would love it.

-Outside investors. They really don't need any more investors for the foreign parks. Every one of them is mostly owned by an outside interest, be it the Chinese govornment or Euro Disney SCA. Seeing as how there are no more parks on the horizon in other places...I don't see what investment they would be looking for overseas.

All the info I have received points to the Board gathering in Florida to approve the plan to entertain offers for the division, and to formally meet with two potential buyers, one Saudi and one Chinese.

So far, nothing has happened. Neither buyer was interested. All our speculation is just that at this point, and it all seems moot until a real buyer comes along.

Lee, given your knowledge and access to it, what, if this ever happens, would this mean to WDW and other Disney Parks? What would we, as fans, see? How would the parks change, in your opinion?

Also, what happens, in your opinion, if a company does purchase and they start to hurt, financially, a la Disney Store? Would the WDC be willing to buy the division back? Or, would they be allowed to founder? I may be asking for too much, here. But, I value your opinion given your credibility on the boards.

 

[CaptainJackNO]

And, is this what some people meant by, "Be careful what you wish for, you may just get it," concerning the heat on getting rid of Michael Eisner?

 

[Lee]

Lee, given your knowledge and access to it, what, if this ever happens, would this mean to WDW and other Disney Parks? What would we, as fans, see? How would the parks change, in your opinion?

Also, what happens, in your opinion, if a company does purchase and they start to hurt, financially, a la Disney Store? Would the WDC be willing to buy the division back? Or, would they be allowed to founder? I may be asking for too much, here. But, I value your opinion given your credibility on the boards.

Honestly, I don't think there would be that much change. The parks and resorts would continue to operate as they do today.

Personally, I would welcome it...assuming they could get the same sort of deal as they have with OLC in Tokyo. Disney makes good money from the deal, and OLC is held to very strict quality standards (much stricter than we see here at the US resorts), and has to use WDI for any and all new additions.

I would also assume that Disney would retain some sort of right of first refusal if the new owner decided to sell, likely at a decent pre-arranged price. The parks would never be allowed to flounder due to the potential damage to the brand, which the company could never allow.

 

[bayoubelle]

Can I just say that I Disney wants to sell, they should take a page out of real estate 101-freshen up and paint. Don't know about you all but I sure as heck would look more favorably on a place that was spic and span. The flaking paint speaks to letting up on maintenance. Wonder if the monorail was working during the visit-oh and Test Track too?

 

[CaptainJackNO]

Honestly, I don't think there would be that much change. The parks and resorts would continue to operate as they do today.

Personally, I would welcome it...assuming they could get the same sort of deal as they have with OLC in Tokyo. Disney makes good money from the deal, and OLC is held to very strict quality standards (much stricter than we see here at the US resorts), and has to use WDI for any and all new additions.

I would also assume that Disney would retain some sort of right of first refusal if the new owner decided to sell, likely at a decent pre-arranged price. The parks would never be allowed to flounder due to the potential damage to the brand, which the company could never allow.

Well, thanks to you Lee, I am going to stop worrying about this. As a purist, (whatever that means ) I wanted the company to remain under the Disney umbrella. But, upon the urging of another member of this forum, I began reading Disneywar, tonight, and I now realize, between that book and what you say, maybe the parks would be in better shape if sold.

As long as WDW is always there for me and my family, I am happy. That was my major concern. Thanks!

 

[amypooh]

I love this quite from the article linked above (emphasis mine):

"There's a lot of potential with Disney's Pixar, Marvel, ABC and theme park divisions, "but this hinges on creative execution and the economy," added the analyst, Matthew Harrigan of Wunderlich Securities"

 

[flavious27]

You know, if Disney is really trying to divest something, it should be the movie studio. They made $49 million on $1.6 billion in revenue? Thats a lot of money in for such a small profit. Especially considering that parks made basically 10.5x that on double the revenue.

Or they can make better movies and or spend less on movies that are just advertizing merch.

 

[devoy1701]

Or they can make better movies and or spend less on movies that are just advertizing merch.

That was Eisner's mantra.... Make great movies, stay away from big budgets and big Hollywood names. Make the story sell the movie, not the stars. (Or get the big stars of yesterday whose careers have hit a lull).

Though I'm not sure how well that will work in today's entertainment world.

 

[flavious27]

Just tossing in...

-Why meet in Florida? I'm told the entire board had to get in one place in order to come to a formal "understand" or "agreement" to actively offer to sell all or part of the division.

-Why would they do it? Many reasons, some of which have been said here. Parks are a risky proposition, subject to the whims of the economy and requiring a heavy dose of expenditure every year. We know how much Disney likes to sit back and get a check. The deal with OLC has done quite well for them, and a similar model would be successful here if they could find a qualified buyer.

-Public reaction? Nah. I don't think it would be too huge beyond the fan community. Even then there are those among the hardcore fans lookaroun)that would welcome a company like OLC and the quality they bring to the table.
And Wall St would love it.

-Outside investors. They really don't need any more investors for the foreign parks. Every one of them is mostly owned by an outside interest, be it the Chinese govornment or Euro Disney SCA. Seeing as how there are no more parks on the horizon in other places...I don't see what investment they would be looking for overseas.

All the info I have received points to the Board gathering in Florida to approve the plan to entertain offers for the division, and to formally meet with two potential buyers, one Saudi and one Chinese.

So far, nothing has happened. Neither buyer was interested. All our speculation is just that at this point, and it all seems moot until a real buyer comes along.

Or it could be that they used this as a guise with jobs' health being touch and go. Having that many shares in limbo would be a concern for the board, and they and jobs would want to see who would invest.

With profits increasing at the parks division, why would they cut themselves at the knees for an asset that provides constant profits for other divisions to grow?

 

[fillerup]

I'll post this here as it's somewhat related, but not worthy of a new thread.

Today's O'Sentinel business section, Beth Kassab. Full Article:

Double-dip? Look to Disney prices for clue

"The most valuable economic data right now aren't necessarily in the hard numbers, but in the squishy art of figuring out how good or bad people feel about spending.

The stock market's yo-yo act last week and conflicting reports on home prices, retail sales and jobs make reading consumers' moods a tricky business.

Even Walt Disney Co., perhaps one of the most astute companies in the world when it comes to pushing its customers' buttons, seems a little stumped.

Executives say they have put away their pots of price-cutting pixie dust.

Gone are the heavy discounts such as the buy-four-get-three-free hotel nights deal that helped prop up attendance at the resort during the worst of the recession.

But for how long?

CEO Bob Iger said during the company's earnings call last week that Disney could revive some its markdown magic if there is a further decline.

"At some point we might. We'll take a look at what impact a weakening economy has on us," he said. "My gut, based on the trends we've seen this past year, is it's not something that we'll necessarily have to do quickly."

In Orlando, we won't have to wait for the official call of a double-dip recession from national economic bosses. If one does occur, it will be spotted first in the form of discounted hotel rooms, meal plans and theme park tickets at Walt Disney World."