Mixed Impressions about Disney's Third Quarter Results

[jcb]

I'm not sure what to think about Disney's third quarter earnings report. This covers the period from April to June. Overall, Disney had a "strong third quarter."

Now, I want Disney to do well as a company (but then I want most companies to do well just because it typically means jobs for people). But I have mixed impressions (downright confused) about the earnings report for park operations. Here is what Disney stated yesterday:

Parks and Resorts revenues for the quarter increased 3% to $2.8 billion and segment operating income decreased 8% to $477 million. Results for the quarter were driven by decreases at our domestic parks and Disney Cruise Line, partially offset by improved results at our international operations.

Decreased operating income at our domestic parks was due to higher costs and lower attendance and hotel occupancy, partially offset by higher guest spending. Increased costs reflected labor cost inflation, higher pension and postretirement medical expenses and costs for new guest offerings, including World of Color at Disneyland Resort, partially offset by lower volume-related costs. Decreased attendance in part reflected an unfavorable impact due to a shift in the timing of the Easter holiday period relative to our fiscal periods. Higher guest spending was primarily due to higher average ticket prices.

Disney Cruise Line operating income decreased due to lower passenger cruise days, increased operating costs to support the fleet expansion and higher fuel costs.

Revenue is up 3% for the quarter (as compared to 2009) but WDW's operating income (essentially net profit) is down 8% (for the quarter, down 7% for the year to date) because attendance is lower and fewer folks are staying on site (reading between the lines).

This continues a downward trend for the fiscal year (for the parks) as the first quarter (which included Thanksgiving and Christmas holidays) was down 2 percent (and the first quarter of 2009 wasn't all that stellar anyway). Disney blamed that on lower attendance at Disneyland Paris.

Second quarter operating income for parks was down 12 percent for the quarter and 7 percent for the year to date. Disney blamed that on higher costs from Disney Cruise Line.

Unlike previous years, the FY 2010 earnings statements say nothing about the impact of theme park discounts on operating income. I take this silence as essentially conceding that discounts are here for a while.

 

[dalt01]

they were saying the union was killing them...........and new product cost had not yet covered itself....as far as hotel occupancy...they were saying that people were not staying as long but were spending more while they were there, this part is most likely due to an increase in the prices of the things people buy rather than the guests buying more things. just MHO.

 

[jcb]

I think they included the statement about increased labor costs because their union contract expires this October.

In the second quarter report, they said, "Increased costs reflected labor and other cost inflation and higher pension and postretirement medical costs, partially offset by lower volume-related costs and savings from cost mitigation activities."

"Cost mitigation activities" = layoffs.