Disney to report Q2 earnings in the shadow of the coronavirus pandemic

Disney (DIS) is set to report fiscal second-quarter results after the market closes on Tuesday, in the shadow of the coronavirus pandemic throttling the global economy and battering Corporate America.

With that in mind, the media and entertainment conglomerate’s top- and bottom-line results are both expected to drop over last year, with its highly profitable theme parks shuttered for much of the quarter due to the COVID-19 crisis.

However, an extended gain in Disney+ subscriptions, could potentially blunt some of that impact as home-bound consumers devour streaming media.

Here are the main results expected from the report, compared to consensus data compiled by Bloomberg:

• Adjusted earnings per share: 86 cents expected, $1.61 Y/Y

• Revenue: $17.68 billion expected, $14.92 billion Y/Y

Disney’s fiscal second quarter comprises the first three months of 2020. During that period, the company’s theme parks were shuttered first in Shanghai and Hong Kong — and then throughout the world as the outbreak worsened.

In February, Disney executives said during an earnings call that a two-month closure of the Shanghai and Hong Kong parks would likely cost it $135 million and $145 million, respectively.

But the closures ultimately went beyond those previously expected timelines, and the company also later closed its theme parks in California, Florida and Paris as well. These disruptions contributed to furloughs of some 100,000 employees — meaning the financial hit could be sizable, given that the segment brought in 58% of company-wide operating profit in the last reported quarter.

“Disney is built on shared group experiences. Until there is global comfort health-wise with that behavior again, Disney’s earnings are fundamentally impaired,” Richard Greenfield, Lightshield Partners media and technology analyst, wrote in a note downgrading shares of Disney to “Sell” from “Neutral” on Tuesday.

Wall Street firm MoffettNathanson also downgraded shares of Disney this week to “Neutral” from “Buy.” The call was an “admission that we believe the economic impact on the company will be longer than most anticipate, especially given the risks of a second wave of infections after reopening,” analyst Michael Nathanson wrote in a note.

Disruptions from the coronavirus pandemic likely also dealt a blow to other parts of Disney’s media empire, including its media networks and studio entertainment segments. Disney’s sports channel ESPN has had to contend with sports events getting canceled or postponed amid the pandemic, and the release dates for a number of feature films, including the live-action “Mulan” and Marvel Cinematic Universe’s “Black Widow” were pushed back.

Disney+, the nascent streaming service, could be the lone bright spot in Tuesday’s report, however. The company revealed in early April it had already amassed 50 million subscribers in the five months since its U.S. launch.

However, competitor Netflix (NFLX) already appears ahead of the game. It reported a far greater jump than expected in quarterly subscribers in its own earnings report in late April, suggesting strong trends in streaming overall as customers seek out entertainment while sheltering in place.

Yet disruptions to filming and producing new content are posing new threats to streaming services, with social distancing orders still in effect across much of the country.

For Disney, “without far greater investment in content or a shift in strategy in terms of movie windowing, it is hard to see how ARPU [average revenue per user] can move up dramatically, especially overseas,” Greenfield said. “Scaling content investment will be even harder to achieve as Disney deals with the fallout of COVID-19 with content spend likely to be delayed/curtailed.”

Shares of Disney were down 28% for the year to date through Monday’s close, underperforming against the broader market’s 12% decline.

This post will be updated when Disney reports results after market close Tuesday, May 5.

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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