Spring Cleaning Came Early

Image source: Disney

What's going on?

Disney’s results earlier this week showed that the firm’s getting a thorough spruce up.

What does this mean?

Activist investors had been circling Disney, but returning CEO Bob Iger blew a pretty loud raspberry at them this week. Iger announced 7,000 job cuts and revealed plans to slash expenses by $5.5 billion – sending a clear message that he doesn’t need any outside help getting the house in order. And the results backed him up: Disney’s theme park business smashed it out of the, well, park, and raked in a better-than-expected $9 billion in revenue. And although Disney’s streaming service dropped more than two million users last quarter, the segment still inched closer to turning a profit. Activist Nelson Peltz took the hint, calling off his boardroom-seat fight the following day.

Why should I care?

Zooming out: All change.
Iger also announced that the company’s reorganizing into three distinct businesses: Disney Entertainment (for the TV and binge-streaming crowd), Parks (for family holidaymakers), and ESPN (a colossal sports network, and the odd one out). That three-way split wasn’t lost on analysts: ESPN was once an all-star performer for Disney, but it’s been acting more like a bench-warmer of late. And although the company swatted away rumors it might auction off the network, it won’t stop investors from wondering whether ESPN’s future is outside the Kingdom’s gate.

The bigger picture: Watch this space.
Cutting costs by $5.5 billion – equal to more than 5% of sales – sounds great for profit margins, but you have to wonder whether slashing costs like this is just a short-term move to fend off activists, or if Disney’s been really overspending. If this is just a short-term stunt, the ploy could end up harming Disney over time. But if the firm actually was that out of shape, keep an eye on its stock: Disney could be about to transform into a leaner, meaner, more profitable outfit.

Originally posted as part of the Finimize daily email.

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