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Disney Shares Steady After COVID-19 Earnings Hit, Dividend Cut; Disney+ Subscribers Top 54 Million

Disney said scrapping its semi-annual dividend will save $1.6 billion, a move that will help offset ongoing slumps in theme park revenues and media ad sales.

Walt Disney Co.  (DIS) - Get Walt Disney Company Report shares edged higher Wednesday after the entertainment giant suspended its semi-annual dividend following a $1.4 billion hit to second quarter profits that overshadowed impressive subscriber gains for its Disney+ streaming service.

Disney said it will take 'phased' approached to theme park re-openings, with some sites in Asia up-and-running by the spring,including a May 11 re-start for Disney Shanghai, after noting the division was responsible for around $1 billion of the second quarter profit decline. 

Adjusted earnings for the three months ending in March, the group's fiscal second quarter, fell 63% to 60 cents per share, missing Street forecasts, even as revenues jumped 20.6% to a stronger-than-expected $18 billion as media networks sales offset the theme park slump.

Disney said scrapping its semi-annual dividend, which was payable in July, will save the company $1.6 billion, a move that will augment a $900 million reduction in 2020 capital spending plans. It also declined to provide financial guidance for the remainder of the year. 

"We are evaluating a wide range of scenarios with respect to the potential ongoing impact of the COVID-19 pandemic on our businesses while prudently managing cash outflows and overall, we feel confident in our ability to manage through the crisis,." CFO Christine McCarthy told investors on a conference call late Tuesday. "We continue to actively evaluate additional mitigation strategies to position our Company to emerge from this crisis with the financial flexibility necessary to get back on a growth path.'

"While it is still too early to consider more specific implications for capital spending in fiscal 2021, we remain confident in our investment decisions and the resiliency of our businesses," she added.

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Disney shares were marked 0.75% higher in early trading Wednesday at $101.92 each, a move that would trim the stock's year-to-date decline to around 31%.

Disney+ subscribers were pegged at 54.5 million as of May 4, the company said, a 4.5 million increase in less than a month. Disney's direct-to-consumer segment, which includes Hulu, ESPN+ and Indian service Hotstar, garnered $4.123 billion in revenue in the quarter, with the average subscriber paying $5.63 a month for Disney+, the company said.

Operating income for Disney’s film division fell 13% to $466 million because of cancelled openings, while Disney’s media networks segment’s operating income grew 8.7% to $2.38 billion, despite weakness at ESPN, which has had little new sports content to broadcast.

"We believe the half-year dividend suspension was a signal of fiduciary conservatism and a conscious culture (optics of full dividend payment are challenging after layoffs/furloughs/etc.) vs. any question of liquidity," said BMO Capital Markets analyst Daniel Salmon. "With Shanghai's re-opening beginning 5/11, we expect a healthy learning curve to apply to domestic re-openings and think it is more likely to drive positive data points vs. negative ones."

"Visibility is a challenge, but over 12 months, we continue to believe the direct-to-consumer story returns to the lead, and shares outperform," he added.

TheStreet founder and ActionAlertsPLUS portfolio manager Jim Cramer said the decision to cut the dividend now was the right move and should be seen as a sign that Disney "means business." Catch Jim Cramer's full take on Disney on StreetLightning.