Disney parks see big revenue drops due to outbreak

The ongoing coronavirus outbreak that has led to the temporary closure of Disney parks in both Shanghai and Hong Kong will negatively impact the second quarter and full year financial results for the Walt Disney Company, according to the company's first fiscal quarter report

Robert A. Iger, chairman and chief executive officer, said on Feb 4 at the beginning of the earnings conference call: "Our hearts go out to all those affected by this outbreak, including thousands of people who work for us in the region. In line with numerous prevention efforts taking place across China, we have temporarily closed parks in Shanghai and Hong Kong. We will continue to closely monitor the public health crisis."

Speaking on the impact of the outbreak, Christine McCarthy, chief financial officer, said the current closures are taking place during the quarter in which the parks typically see strong attendance and occupancy levels due to the timing of the Chinese New Year holiday.

"The precise magnitude of the financial impact is highly dependent on the duration of the closures, and how quickly we can resume normal operation," she said.

McCarthy said the Shanghai Disney resort currently estimates the closure of the park could have an adverse impact on second quarter operating income to the tune of about $135 million, assuming the park is closed two months during the second quarter.

As for Hong Kong Disneyland, McCarthy currently estimates the closure of the park could have an additional adverse impact on operating income of about $40 million for the second quarter, along with a significant drop in visitation. She said they estimate these two factors could result in a decline in Hong Kong Disneyland operating income of about $145 million for the second quarter.

In the first quarter report, the decrease in operating income at Disney's international parks and resorts was due to lower results at Hong Kong Disneyland Resort, partially offset by growth at Shanghai Disney Resort.

Lower results at Hong Kong Disneyland Resort were due to decreases in attendance and occupied room nights, reflecting the impact of recent events. At Shanghai Disney Resort, higher operating income was driven by an increase in attendance, according to the first quarter report.

On the possible impact of the virus outbreak on visitation to domestic parks in the United States, the CFO said despite lower visitations from Asia, there is no evidence of impact on intent to visit or people fulfilling their reservations.

Disney's first-quarter revenue has jumped 36 percent to $20.8 billion compared to the previous period. Its net income has dropped to $2.13 billion from $2.79 billion.

"We had a strong first quarter, highlighted by the launch of Disney+, which has exceeded even our greatest expectations," Iger said.