Disney Suspends Dividend Due to COVID-19
We are maintaining our wide moat and our fair value estimate.
Disney’s (DIS) fiscal second quarter was slightly better than expected as revenue and adjusted EBITDA both came in slightly ahead of FactSet consensus despite the impact of COVID-19. The board announced the semiannual dividend for the first half would be suspended, saving the firm roughly $1.6 billion in capital based on the previous payment of $0.88 per share. Given that the firm had $14 billion in cash at the end of March with another $17 billion available via its credit facilities, we think the dividend suspension is less about preserving cash and more about the perception of paying a dividend while furloughing over 120,000 employees. We are maintaining our wide moat and our FVE of $130.
Revenue for the quarter increased 21% year over year to $18.0 billion. Media networks revenue improved 28% due to the Fox consolidation. Affiliate fee revenue in the quarter was up 16%, which was made up of a 12 point increase from the Fox assets and a 7 point gain from higher pricing, with a 3 point decline from fewer subs, implying 4% growth in affiliate fee revenue excluding the Fox impact. Unsurprisingly, management expects a large decline in ad revenue at ESPN next quarter given the lack of live sports. Segment operating income margin for media networks fell to 32.7% from 39.5% due to the loss of live sports, higher sports rights costs, and increased costs for the ACC Network launch.
Revenue at the direct-to-consumer segment hit $4.1 billion due to the launch of Disney+. Studio revenue was up over 18% as the Fox consolidation offset the theatrical shutdown. Revenue for the parks and experiences segment only fell 10% versus the previous year, well ahead of our projection for a 30% decline. Surprisingly, management expects to reopen the Shanghai park on May 11, albeit with a very constrained capacity limit. We think that the Chinese government could rescind its permission to reopen the park at any time over the next few months as it has with other reopenings like movie theaters.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Neil Macker does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.