Business context and reporting period
The Walt Disney Company’s unaudited Form 10-Q covers the fiscal second quarter and six months ended April 3, 2021, compared with periods ended March 28, 2020. Disney reports two segments: Disney Media and Entertainment Distribution (DMED) and Disney Parks, Experiences and Products (DPEP). A media and entertainment reorganization took effect in fiscal 2021; prior-period segment results were recast, but the new presentation may affect comparisons.
Financial performance and position
| Metric | Quarter | Six months |
|---|---|---|
| Revenue | $15.613 billion, down 13% | $31.862 billion, down 18% |
| Net income attributable to Disney | $901 million, up from $460 million | $918 million, down from $2.567 billion |
| Diluted EPS from continuing operations | $0.50, versus $0.26 | $0.52, versus $1.43 |
| Segment operating income | $2.465 billion, up 2% | $3.797 billion, down 41% |
| Cash from continuing operations | Not separately presented here | $1.468 billion, versus $4.787 billion |
Quarter revenue fell as pandemic-related park restrictions and lower theatrical and home-entertainment activity outweighed growth in streaming. DMED revenue was $12.440 billion, up 1%, and segment operating income was $2.871 billion, up 74%. DPEP revenue was $3.173 billion, down 44%, and its segment operating loss was $406 million, compared with $756 million of income a year earlier. For the six months, DMED operating income rose 38% to $4.322 billion, while DPEP recorded a $525 million operating loss versus $3.278 billion of income.
DMED’s quarterly Direct-to-Consumer revenue grew 59% to $3.999 billion; its operating loss narrowed to $290 million from $805 million. Paid subscribers at April 3 included Disney+ 103.6 million, ESPN+ 13.8 million and Hulu 41.6 million. Disney+ average monthly revenue per paid subscriber declined 29% to $3.99, primarily reflecting Disney+ Hotstar launches in lower-revenue markets. DPEP’s quarterly park admissions revenue declined 62% and resorts and vacations revenue declined 63%.
For the six months, cash used in investing activities was $1.327 billion, including $1.530 billion of park, resort and other property investment. Operating cash flow less that investment was approximately negative $62 million. Cash and cash equivalents were $15.890 billion at April 3, down from $17.914 billion at October 3, 2020. Total borrowings were $56.146 billion, comprising $5.243 billion current and $50.903 billion long-term; cash less borrowings was approximately negative $40.3 billion. Current assets of $32.877 billion exceeded current liabilities of $26.642 billion by $6.235 billion. The company reported $12.250 billion of unused bank-facility capacity and said it met its interest-coverage covenant by a significant margin.
Material changes, outlook and risks
- Pandemic effects: Management estimated COVID-19 reduced DPEP segment operating income by $1.2 billion in the quarter and $3.8 billion in the six-month period versus the prior-year periods. Disneyland Resort and Disneyland Paris were closed throughout the quarter; other parks operated with restrictions, and cruise sailings remained suspended.
- Management outlook: Disney expected COVID-19 to adversely affect results at least through fiscal 2021 and estimated pandemic-related health and safety costs of approximately $1 billion for fiscal 2021. Fiscal 2021 capital expenditures were expected to be comparable to fiscal 2020’s $4.0 billion. Management said liquidity and financing access were adequate, while noting continued uncertainty and potential additional mitigation actions.
- Unusual items: Quarterly results included a $305 million DraftKings fair-value gain, $414 million of restructuring and impairment charges, and $605 million of TFCF and Hulu acquisition amortization. Six-month other income included a $186 million fuboTV gain and the $119 million DraftKings gain. The quarter’s effective tax rate was 8.8%, versus 49.8%, reflecting tax-item benefits; the filing cautions that pandemic uncertainty made the year-to-date tax provision less representative.
- Restructuring and commitments: Restructuring charges primarily related to a planned animation-studio closure, Disney-branded retail-store closures and severance. Disney entered into approximately $36 billion of new multi-year sports-rights commitments; scheduled payments were approximately $2.5 billion in fiscal 2022, $4.1 billion in 2023, and $3.7 billion in each of 2024 and 2025.
- Other risks: Management cited uncertainty around park reopening and demand, content production and sports availability, customer collections, asset impairments, leverage and borrowing costs. A Mexican sports-media divestiture remained pending; the regulator extended the deadline to May 21, 2021. No fiscal 2021 dividends had been declared or paid.
Most important facts for investors to verify
- Whether park capacity, attendance, hotel occupancy and cruise operations recover, and whether the estimated pandemic-related costs and operating-income impacts change.
- Whether streaming subscriber growth translates into improved per-subscriber revenue and sustainable profitability, particularly for Disney+.
- How operating cash flow, capital spending and debt evolve, including the timing and funding of sports-rights payments.
- How much reported earnings depend on tax benefits, investment gains, restructuring charges and acquisition-related amortization.
- The status and outcome of the Mexican divestiture and other disclosed commitments, contingencies and legal matters.