Disney (DIS) Raises Planned Layoffs to 32,000

The Walt Disney Company (DIS) has announced that it plans to lay off 32,000 employees by the end of March 2021, which is when the first half of its fiscal year 2021 concludes. The force reduction will be primarily in Disney's Parks, Experiences and Products segment, which had about 155,000 employees as of Oct. 3, 2020, the date on which its fiscal year 2020 ended. As of the same date, Disney employed about 203,000 persons in total.

The figure of 32,000 employees to be laid off is up from an estimate of 28,000 made public in September. Meanwhile, Disney already had about 37,000 employees on temporary furlough as of Oct. 3, 2020. The company cites "COVID-19 impacts and the changing environment in which we are operating" as the reasons for the force reductions.

Significance for Investors

Disney's Parks, Experiences and Products segment includes, among other things, its theme parks and cruise ships. The company notes that, since late in the second quarter of its fiscal year 2020 (the reporting period ending in March 2020), its theme parks have been closed or operating at far below capacity; cruises, guided tours, and stage plays have been suspended; its retail stores have been closed; its merchandise licensing business and advertising sales have been down; and it has faced delays in the production of new film and TV content, as well as in the availability of new live sports events for broadcast.

The Parks, Experiences and Products segment reported revenue of $16.5 billion in fiscal year 2020, down 37% from $26.2 billion in the prior fiscal year. Operating income for the segment swung from a profit of $6.8 billion in fiscal 2019 to a loss of $81 million in fiscal 2020. Reducing the loss was about $500 million of federal assistance extended under the CARES Act.

However, the figures for full-year fiscal 2020 include almost half a year of normal operations. To project the status quo into the future, it is more useful to focus on the latest reported fiscal quarter, which ended on Oct. 3, 2020. During this quarter, revenue for Parks, Experiences and Products was $2.6 billion, down by 61% from $6.7 billion in the same period during 2019, while operating income fell from a profit of $1.4 billion to a loss of $1.1 billion.

Among the "mitigation efforts" taken so far by Disney have been: raising cash through debt issuance, suspending dividends, halting some capital spending, reducing discretionary spending (notably in marketing), temporarily cutting management compensation, and temporarily suspending the fees paid to directors. On the other hand, the company continues to extend medical benefits to furloughed employees. 

Looking Ahead

Disney's 10-K report explains: "The impact of these disruptions and the extent of their adverse impact ... will be dictated by the length of time that such disruptions continue ... and among other things, the impact of governmental actions imposed in response to COVID-19 and individuals' and companies' risk tolerance." It continues: "As some of our businesses have reopened, we have incurred additional costs to address government regulations and the safety of our employees, talent, and guests. The reopening or closure of our businesses is dependent on applicable government requirements, which vary by location, [and] are subject to ongoing changes."

"Additional mitigation actions" that Disney may take in the future, should the adverse impacts of COVID-19 and related actions taken by governments persist, are: "raising additional financing; not declaring future dividends; reducing, or not making, certain payments, such as some contributions to our pension and postretirement medical plans; further suspending capital spending; reducing film and television content investments; or implementing additional furloughs or reductions in force."