Conference Call Cliff Notes

[larworth]

My notes from the latest earning's call. Left out most of that boring non park stuff.

PARK RESULTS
......................4Q
Sales..............-2%
Earnings.........-13%

................................WDW.......DL......TDS
Attendance...............-25%........Up.....UP!!
Locals.......................Flat..........Up
Hotel occupancy........-20%.......-15%
Spend/person.............-5%.......-13%
% by Air.....................50%........25%

Eisner “If you talk to people visiting the parks today they wouldn’t notice a lack of crowds. Believe we are doing much better than our competitors. Shows that quality does win out”

Eisner “TDS is a spectacular, creative park that benefits greatly from having the Disney brand name”


COSTS

Realized several hundred million more permanent cost savings (this could be a corporate number, it was not clear). Specific things they pointed to at the parks

More aggressive than usual park hour reductions
Fewer shows
Temporary closings at some hotels
Closed non-essential food and concessions
Defered non-essential refurbishments
Reduced man-hours
Hiring and salary freeze

Iger? “We have done all this without doing anything that affects customer service. Our cuts were essentially invisible to the guest”


THE FUTURE

This is generally where the analysts focus. In the past 1 out of 10 questions might be about the parks. This time around about half were

* Two questions about possible WDW price discounts? Dodged them both times.

* How quick does attendance recover? “Usually very quick but all dependent on shape of economy next year, and we don’t have a crystal ball on that one”

* Plans for 3rd gate in CA? “That property will continue to be the home of the best strawberries for quite some time”

* Pixar relationship? “Excellent. Have ideas for a Monsters sequel plus right to Toy Story sequels as well”.

* Where will growth come from? “Growing TDS royalties, Studios Paris opening in the Spring and HK park down the road”

* Next quarter? “Income could be off by as much as 50%. Down only 10-15% thereafter”


MY OBSERVATIONS

Next quarter for the parks will not be pretty, but no losses on the horizon.

The DL increase in locals must be huge if DL attendance is up while DL hotels are down 15%.

With all those reports about locals filling WDW on the weekends local attendance was still flat. Curious that WDW hotel rooms are off less than park attendance?

Don’t expect to get all the cost reductions back when things get better, but probably most.

Love all these invisible park reductions. Nobody notices the reduced park hours as we must all leave our watches home when we are on vacation.

Don’t expect any new price discounts for WDW

If AV wants to visit a waterpark in the near future it probably will have to be Soak City.

 

[All Aboard]

Sales off 2%, yet profit off 13%.

Assuming a prior margin of 20%, they acheived absolutely no cost savings during the quarter. If the assumption is that revenue will be off by 20% - 25% in Q4, expect even more drastic cost cutting than we've seen to date. The only way they will preserve 50% of their profit is by cutting about 15% of expenses. That's an enormous cut considering how much is fixed. Expect the parks to be hit even harder.

 

[larworth]

The thing that may complicate the comparison is DCA. If you add all of the operating expenses associated with a new park, but get little revenue impact it does do a number on earnings (I don't think the pro forma is DCA adjusted).

I wonder if DCA was taken out of the equation what the profit reduction would have been? It will be really interesting to see the impact a full quarters reduced attendence has on park results.

It is possible that the 50% profit reduction willbe for the overall corporation. Some divisions being above and below that average. In that event, maybe the parks division will come in even higher than a 50% drop.