Even though Hollywood is on strike, the conference call was heavily scripted, and they only talked about things that are going well and could boost the share price, even though the company’s actual situation is very, very worrying.
Disney, among other things, intends to raise streaming service prices and crack down on password sharing. They stated that they intend to pay dividends in the future, and Wall Street certainly likes that. There isn’t really any money for this, but I guess it doesn’t matter much. They were asked about the financing of the Hulu deal, but it was essentially brushed aside and they only talked about everything else.
The reopened theme parks in China saved the quarterly results; otherwise, almost all numbers were terrible, and even though revenue has increased across several lines, inflation and rising costs are destroying the bottom line.
Reading between the lines, it’s clear that the figures have been beautified and accounting tricks used to make the numbers look better, for example:
Restructuring and Impairment Charges
In the current quarter, the Company recorded charges of $2,440 million related to the removal of
content from our DTC services and the termination of certain third party license agreements for the right
to use content primarily on our DTC platforms (Content Impairment Charge) and $210 million of
severance.
Taxes
The current quarter loss from continuing operations before income taxes included the $2,440 million
Content Impairment Charge. Income tax on continuing operations included a benefit of $568 million from
this charge using the Company’s marginal income tax rate of approximately 23%. Due to the significance
of this charge on pre-tax income, our reported effective tax rate for the current quarter is negative 14.2%.
Excluding the impact of this charge, the effective income tax rate on continuing operations would have
been approximately 25.5% compared to 29.1% in the prior-year quarter. The decrease is due to the
following:
• Lower effective tax rates on foreign earnings in the current quarter compared to the prior-year
quarter; and
• A benefit from the comparison of adjustments related to prior years, which was favorable in the
current quarter and unfavorable in the prior-year quarter.
EPS
Diluted earnings per share (EPS) from continuing operations for the quarter was a loss of $0.25
compared to income of $0.77 in the prior-year quarter.
• Excluding certain items(1), diluted EPS for the quarter was $1.03, down from $1.09 in the prioryear quarter.
• EPS from continuing operations for the nine months ended July 1, 2023 decreased to $1.14 from
$1.66 in the prior-year period.
