Walt Disney (DIS) - Get Report will stop sending paychecks to more than 100,000 employees, mainly cast members, starting this week in an efforts to save more cash as the coronavirus lockdown continues.
The affected employees will be asked to seek state benefits, while Disney will continue to provide full healthcare benefits for staff placed on unpaid leave, according to the Financial Times.
Earlier, the company had said it would furlough certain non-essential U.S. employees starting April 19 and urged them to apply for the extra $600 a week of federal support available through the government's $2 trillion coronavirus stimulus package.
In Florida, which is home to more than 70,000 cast members in Orlando Disney parks, the state unemployment payments are up to $275 a week for 12 weeks.
The move follows Disney's disclosure earlier this month of a new credit agreement with Citigroup for as much as $5 billion to help tide it over economically as its theme parks remain shuttered and its cruise ships docked.
The $5 billion facility, revealed in a Securities and Exchange Commission filing two weeks ago, will be used for “general corporate purposes,” the company said.
Meantime, UBS analyst John Hodulik downgraded Disney on Monday to neutral from buy and cut his one-year price target to $114 from $162 on what he sees as a difficult recovery ahead, particularly for the company’s parks segment.
In a research note titled, "The Eye of the Storm,” Hodulik said he expects profitability within the company’s parks segment "will be impaired for a longer period of time" given the lingering effects of the outbreak, predicting an opening date of Jan. 1 as a base case.
The ensuing economic downturn combined with new health precautions, a lack of travel and crowd aversion are likely to make the business less profitable until there is a widely available vaccine, which in turn will push earnings lower, Hodulik said.
He now expects Disney to post per-share earnings of $1.60 in fiscal 2020, down from $3.08, and $2.13 in fiscal 2021, down from $5.87.
Shares of Disney were down 4.02% at $102.46 in trading on Monday.
Disney is a holding in Jim Cramer's Action Alerts PLUS member club.