Under major pressure from billionaire activist investor Nelson Peltz, Disney CEO Bob Iger delivered a dose of magic to beleaguered investors in his first earnings call since returning in November 2022.
Shares of the media and theme park giant soared 7% in pre-market trading on Thursday as Iger unveiled $5.5 billion in cost cuts, mostly by laying off some 7,000 employees. The company’s ticker page was the most visited on the Yahoo Finance platform.
“The hard work is ahead, but substantive and specific cost savings suggest a sense of urgency to maximizing long-term returns,” said Morgan Stanley analyst Benjamin Swinburne in a client note.
But there was more to Disney’s earnings for the fiscal first quarter (which ended December 31, 2022) than just Iger wielding his cost-cutting light saber.
The company conveyed several key messages to investors that could go a long way in supporting a higher stock price and perhaps, fending off Peltz’s advances to gain a seat on the board.
Here are three big moments from Disney’s earnings call investors need to know about.
#1: Here comes the Disney dividend
Disney pulled its dividend in May 2020 as the cash-cow theme parks business was getting hammered by COVID-19 lockdowns. Disney shelled out about $9.5 billion in dividends from calendar year 2016 through 2020, according to filings. The company’s last dividend payout was $0.88 a share semi-annually.
Now with the theme parks humming, movie theaters reopened, and $5.5 billion in cost cuts coming, the Disney dividend is primed to return.
“Now that the pandemic’s impacts to our business are largely behind us, we intend to ask the board to approve the reinstatement of a dividend by the end of the calendar year,” Iger said. “Our cost cutting initiatives will make this possible. And while initially, it will be a modest dividend, we hope to build upon it over time,” Iger told analysts.
People dressed as stormtroopers and the character Kylo Ren react at “Star Wars: Galaxy’s Edge” at Disneyland Park in Anaheim, California, U.S., May 29, 2019. REUTERS/Mario Anzuoni
#2: No spin-off of ESPN, for Now
As part of its restructuring, ESPN will be stood up as its own reporting segment.
The move immediately raised questions on whether Disney is setting the stage for an eventual spin-off of ESPN — something that the company has been pushed to do numerous times in the past decade.
It appears that Iger will not go down the costly route of separating ESPN from Disney, instead investing in the brand to maximize value.
“The brand of ESPN is very healthy and the programming of ESPN is very healthy,” the CEO said. “We just have to figure out how to monetize it in a disrupting and a continuing — disrupting world. That’s it. But we’re not engaged in any conversations right now or considering a spin-off of ESPN. That had been done by the way, in my absence and until the company concluded after exploring it very carefully, that it wasn’t something the Company wanted to do.”
#3: A promise to make money from streaming
Disney’s direct-to-consumer (aka streaming) business, consisting mostly of Disney+ and Hulu, lost a staggering $1.05 billion on an operating basis in the most recent quarter.
That’s up from a $593 million loss a year earlier.
“Now it’s time for another transformation,” Iger asserted. “One that rationalizes our enviable streaming business and puts it on a path to sustained growth and profitability.”
Iger reiterated a goal to reach profitability for Disney+ by the end of fiscal year 2024. To get there, Iger not only appears focused on cutting costs on the platform but also raising prices while hopefully capturing a better quality subscriber.
“We’re still going to look to grow subs, we just want to grow quality subs that are loyal and where we actually have an ability to continue to price effectively to those subs,” he added.
Disney raised the price of Disney+ to $10.99 a month from $7.99 in the U.S. on Dec. 8.