Disney’s biggest financial problem has nothing to do with the coronavirus

by Faith Rose

The Magic Kingdom’s once sorcerous profitability is getting slammed both by COVID-19 and the drag from its acquisition of 21st Century Fox. The hit from the virus will eventually be mitigated. But the damage from the superexpensive deal is likely to saddle the new, vastly expanded Disney with far lower returns than the pre-Fox realm for years to come.

In its earnings announcement for the second quarter (ended March 31), the Walt Disney Co. detailed how the coronavirus suddenly savaged its entertainment strongholds that were thriving until midway through the quarter. Disney shuttered all of its worldwide theme parks and suspended its cruises in February and March, causing a 58% drop in operating income from its parks, experiences, and consumer products franchise, its most profitable segment. Operating income dropped from $3.8 billion in the second quarter of last year to $2.4 billion, a fall of 37%. To save cash, Disney canceled its $1.6 billion, semiannual dividend to be paid in July and unveiled a reduction in annual capex of $400 million, or around 8%. Its press release cited “significant operational and financial disruption caused by COVID-19.”

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