It wasn't any secret that Disney (DIS 1.34%) faced unprecedented challenges this quarter. In the face of the COVID-19 pandemic, the entertainment monolith was forced to close down its theme parks and resorts, dock its cruise ships, and shutter production of its blockbuster movies. As if that weren't bad enough, live sports have gone into lockdown, causing sports TV network ESPN to resort to airing repeats of classic games and documentaries.
The House of Mouse reported its second-quarter results this week, and there were some surprises, as three of the company's four operating segments generated revenue gains.
Somewhat ironically, it was the waning media networks segment that turned in the best performance, as many consumers under stay-at-home orders turned to cable and traditional broadcast television for in-home entertainment.
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There was actually revenue growth
Disney reported revenue of $18 billion, up 21% year over year, edging out analysts' consensus estimates of $17.81 billion. The bottom line results were brutal, as earnings per share (EPS) of $0.26 plummeted 93% compared to the prior-year quarter. Adjusted EPS -- which excludes certain items for comparability -- came in at $0.60, down from $1.61 in the prior-year quarter.
The results from within the segments were uneven at best, but the parks, experiences, and products segment was the hardest hit. Disney noted that the closure of theme parks and retail stores, suspended cruise ship sailings and guided tours, and supply chain disruptions resulted in a 10% decline in segment revenue -- even though many of the shutdowns didn't happen until mid-March -- sending operating income cratering nearly 60%.
The studio entertainment segment was also able to generate revenue growth, up 18%, though operating income slipped 8%. Disney movies continued to show in theaters until mid-March, but Disney was forced to take impairment charges as theatrical distribution and stage plays were halted.
Saved by cable? What about Disney+?
Disney's media networks segment was the primary breadwinner, as revenue grew 28% and accounted for 40% of the total. The segment was also responsible for nearly all of Disney's operating income. Cable networks benefited from contractually obligated increases in affiliate revenue, though this was offset somewhat by fewer viewers of major sporting events that were canceled beginning in mid-March.
Within the direct-to-consumer and international segment, Disney+ got a huge boost from its roll-out in Western Europe and India, with paid subscribers increasing from 33.5 million on March 28 (the last day of the quarter) to more than 50 million by April 8. On the conference call, CEO Bob Chapek said Disney+ subscribers had climbed to 54.5 million by May 4. Revenue for the unit soared nearly four-fold to $4.1 billion, though it still generated about $0.8 billion in operating losses.
Subscribers for ESPN+ and Hulu ended the quarter at 7.9 million and 32.1 million, respectively, bringing Disney's total subscribers to 73.5 million, which shows the company is joining the worldwide streaming elite.
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There's good news, and then there's bad news
There was a ray of hope for the future. Chapek said on the conference call that Shanghai Disneyland, which has been shuttered since January, will reopen on May 11. The theme park will require guests and employees to wear masks, and the park is instituting temperature checks and contract tracing in order to prevent further outbreaks. Disney will also limit the number of guests allowed in the park at one time in order to promote social distancing.
There was more bad news for investors in the blue-chip stock, however. CFO Christine McCarthy said Disney would skip its semi-annual dividend payment in July, a move which will save the company about $1.6 billion in cash.
Chapek also said it's "too early to predict when we will begin to resume all of our operations."
