Disney is warning investors that the coronavirus pandemic has affected so many of its business segments that it's becoming more challenging for the company to estimate its future performance.
"We have closed our theme parks; suspended our cruises and theatrical shows; delayed theatrical distribution of films both domestically and internationally; and experienced supply chain disruption and ad sales impacts," the company said in a filing with the Securities and Exchange Commission Thursday.Â
"In addition there has been a disruption in creation and availability of content we rely on for our various distribution paths, including most significantly the cancellation of certain sports events and the shutting down of production of most film and television content," the company said.
Shares of Disney are down around 37% since January, falling below $100 per share for the first time since Oct. 2017.
As of Dec. 28, 2019 Disney had around $48 billion of debt outstanding and around $6.8 billion of cash on hand, according to Fitch Ratings. The credit rating agency also noted that Disney has an available revolver of $12.25 billion under three credit facilities.Â
"The coronavirus pandemic will materially weaken Disney's operating and credit profile over the near term (next two to three quarters)," Fitch said of the company. "However Fitch anticipates that Disney's businesses will normalize gradually in step with the return of economic activity as the coronavirus threat diminishes."
While Disney notes that COVID-19 could impact the cost of borrowing in the future, perhaps an even more important effect of the virus is how it could change consumer behavior, the company said.Â
Studio releases
Disney has had to postpone one film from its second-quarter slate — "Mulan" — and almost all of its third-quarter releases as theaters shutter and consumers avoid large gatherings. Disney's fiscal calendar is shifted, so the second quarter is January to March and the third quarter is April to June.
Here are all Disney, Searchlight Pictures and 20th Century films due out in the third quarter:
- "New Mutants" — April 3 (postponed)
- "Antlers" — April 17 (postponed)
- "Black Widow" — May 1 (postponed)
- "The Personal History of David Copperfield" — May 8 (postponed)
- "The Woman in the Window" — May 15 (postponed)
- "Artemis Foul" — May 29
- "Soul" — June 19
From January through March last year, Disney-produced films (not including Searchlight Pictures or 20th Century movies) tallied $489.6 million in sales at the North American box office.
For comparison, from Jan. 1 to Mar. 15 this year, Disney has sold around $232.7 million in tickets in North America, not including Searchlight Pictures and 20th Century titles.
Had "Mulan" not been forced to move from its March 27 release date, the company could have had that opening weekend haul to add to its tally. "Mulan" was expected to take in between $80 million to $100 million during its debut in North America.
The April to June period is going to be hit even harder. In 2019, from April 1 to June 30, Disney-produced movies took in $1.54 billion in North America. Searchlight Pictures and 20th Century movies garnered $114.7 million, according to data from Comscore.
With only two movies out of seven still set to be released, it is unlikely Disney will be able to come even close to reaching last year's numbers. And those films could still be postponed.Â
In total, Disney took in more than $11 billion from its studio releases globally last year. 2020 was already expected to be a weaker year, but the coronavirus impact will likely be significant.
Parks, experiences and products
Disney isn't just a studio. It also has a number of other segments of its business that have been hit by the outbreak. Its parks, experience and products segment, which includes its theme parks, hotels, cruise line and consumer products arm, is likely to take a big hit as well.Â
Its theme parks across the globe are closed at least until April, but experts in the industry foresee those closures lasting even longer.
"These are highly profitable companies in normal times and we will eventually get back to normal times," James Hardiman, analyst at Wedbush, said of companies in the theme park industry. "We just need to buy some time."
Bill Coan, president and CEO of ITEC Entertainment, expects companies like Disney to take advantage of the these down times to work on attractions, provide maintenance and any necessary upgrades that would normally have been done at night or by closing certain areas of the park to the public. Of course, that is all dependent on if crew members are permitted to work during this time.
It's unclear how the closure of the two California Disney parks will impact the opening of the Avengers Campus expansion at California Adventure. The new land was expected to open to the public in July. It is unknown if workers have been able to continue working on the project.
Last year, Disney's parks, experiences and products revenue reached $26.2 billion. In its fiscal second quarter, the company reported $6.1 billion in revenue. That number will likely be smaller this year, as Disney was forced to close its Asia-based parks in February and its U.S. and European-based parks for the remainder of March.
Its third quarter, which ends in June, is where it could see an even bigger hit if parks are not able to be reopened or if only some parks can reopen. Last year, the company saw $6.5 billion in revenue from its parks, experience and products segment.
What does ESPN do without sports?
Additionally, Disney has a robust television business that has seen productions shut down and with sports leagues postponing their seasons, ESPN is without its traditional slate of content.Â
ESPN's executive vice president of programming acquisitions and scheduling said Tuesday that the sports station will continue to cover the sports world, like the coronavirus effects on different leagues and NFL free agency.
The segment is also "looking ahead to entertain fans through fun, compelling archival content and/or themed and stunt event programming that will provide a diversion at a time that there are virtually no other live sports to watch," he said.
In the past, ESPN has done special annual events like ESPN: The Ocho, a takeoff of the movie "Dodgeball," where it has showcased oddball events like Cherry Pit Spitting and Acrobatic Pizza Trials.
The station could also host a marathon of consecutive games from a certain sport or team to fill its timetable.Â
Last year, Disney's media networks posted $24.8 billion in revenue, with $5.5 billion made in the second quarter and $6.7 billion in the third.
A new part of Disney's portfolio is its streaming service Disney+, which launched the U.S. and a few other countries in November. The platform is filled with some new content, but its biggest feature is its extensive library of past Disney content.
While some of its programming like "The Falcon and the Winter Soldier" has seen production delays because of the coronavirus, for the most part, the service has remained relatively unaffected.Â
As more people are forced to stay home during this outbreak, Disney could see a bump in subscriptions. As of February, Disney reported having 26.5 million paying subscribers.
Investors are also wondering if Disney will hasten the roll-out of the subscription service to other countries in order to capitalize on the number of people who are unable to leave their homes.
