- Adjusted EPS was $0.60 vs. the $0.89 analysts expected.
- Overall revenue was higher-than-expected.
- Parks, Experiences and Products revenue fell, but by less than expected.
Disney delivered mixed results for its Q2 FY 2020 earnings report, released May 5. Its earnings were well below the analysts' estimates, but its revenue was higher-than-expected. Its Parks, Experiences, and Products segment revenue fell by 10%, a large drop but less than analysts expected. Overall revenue for its Direct-to-Consumer & International segment increased substantially, helping to make up for the decline. The company's Direct-to-Consumer segment is not yet generating an operating profit so the increase in revenue from this money-losing segment weighed on earnings.
(Below is Investopedia's original earnings preview, published 5/4/20.)
What to Look for
The COVID-19 pandemic has had a major impact on how consumers interact with entertainment conglomerates like Walt Disney Co. (DIS). Disney businesses relying on in-person activities have seen plunging demand, including theme park attendance, cruise line bookings, and viewership at live sports network ESPN. By contrast, the company's new streaming entertainment service, Disney+, is positioned to see surging viewership as more customers stay at home. Investors will watch closely how these conflicting trends affect Disney's results when it reports earnings on May 5, 2020 for fiscal Q2 2020. Analysts expect plunging adjusted earnings per share even as revenue rises due largely to the company's giant acquisition of 21st Century Fox in the same period a year earlier. This is the first fiscal Q2 to fully reflect revenue figures including 21st Century Fox. Disney's fiscal year ends in September.
A key metric investors will focus on in the Q2 report is revenue at Disney's Parks, Experiences and Products segment, which the COVID-19 pandemic is poised to do the most damage to. This segment includes its theme parks, resorts, cruise line, and its merchandising. Analysts expect this segment to suffer its first YOY revenue decline in three years.
In the past 12 months, Disney's stock has dramatically underperformed the market, with a total return of -21.7% compared to -3.2% for the S&P 500.
In prior fiscal Q2 periods, Disney's quarterly revenue growth has varied widely in recent years. It rose 2.8% year-over-year (YOY) in Q2 FY 2017, 9.1% YOY in Q2 FY 2018, and 2.6% YOY in Q2 FY 2019. Analysts estimate revenue for Q2 FY 2020 will grow at a much faster clip, by 18.6% YOY to $17.7 billion for the quarter. Revenue will be bolstered due to its $71.3 billion purchase of entertainment giant 21st Century Fox, which occurred a year in March of 2019, near the end of Q2 FY 2019.
By contrast, the performance of Disney's adjusted earnings per share (EPS) has deteriorated sharply. Disney posted gains in quarterly adjusted EPS of 10.3% in Q2 FY 2017 and 23.2% in Q2 FY 2018. But adjusted EPS fell 12.9% in Q2 FY 2019. The most recent quarter could be even worse: consensus estimates are for a massive decline of 44.9% YOY to $0.89 for Q2 FY 2020. That would be Disney's sixth year-over-year quarterly decline in earnings in a row.
|Disney Key Metrics|
|Estimate for fiscal Q2 2020||Fiscal Q2 2019||Fiscal Q2 2018|
|Adjusted earnings per share (in dollars)||0.89||1.61||1.85|
|Revenue (in billions of dollars)||17.7||14.9||14.5|
|Parks, Experiences and Products revenue (in billions of dollars)||5.4||6.2||5.9|
Source: Visible Alpha
As mentioned, a key metric to watch is Disney's Parks, Experiences and Products segment. It's the most vulnerable of any Disney segment to disruption from COVID-19. Making up more than a third of Disney's total revenue in 2019, this segment has been the largest by revenue for the past 3 years. This segment is reliant on travel, crowded public spaces, and non-essential retail purchases, and is right at the intersection of the industries most disrupted by COVID-19.
This segment has posted steady, if unspectacular, revenue growth every quarter since Q2 FY 2017. If analysts are to be be believed, this streak is about to be broken by a 12.2% drop in Q2 FY 2020. This compared to the 8.4% YOY growth posted in Q1 FY 2020, the third-fastest quarterly growth rate since this streak started in Q2 FY 2017. Considering that much of the world only faced lockdowns towards the end of the most recent quarter, this is likely to be just a taste of the pain to come later in the year.
The Walt Disney Company. "Disney’s Q2 FY20 Earnings Results Webcast," Accessed May 3, 2020.
The Walt Disney Co. "Q2 FY 2019 Quarterly Earnings Report," Page 1. Accessed May 4, 2020.
TradingView. Stock Performance for Disney and S&P 500, Accessed May 3, 2020.
The Walt Disney Company. "Form 10-K 2019," Page 37. Accessed May 4, 2020.