Latest / Bloomberg Intelligence / Disney Plans Thousands of Layoffs, Targeting 20% Cost Savings

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Disney Plans Thousands of Layoffs, Targeting 20% Cost Savings · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios.
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  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 4: Our good friends at the Walt Disney Company, they need
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  Speaker 4: to cut costs by, I think they're talking 20% cut
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  Speaker 4: in annual cost savings through some job cuts and some
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  Speaker 4: other cost of board.
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  Speaker 5: Stuff there.
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  Speaker 4: So time's, I guess, a little tough there with Mickey Mouse.
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  Speaker 4: Geetha Ranganathan, she joins us here. She's the media analyst
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  Speaker 4: for Bloomberg Intelligence. Geetha, what's Disney, what's the strategy behind
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  Speaker 4: trying to cut 20% of your costs here for Disney?
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  Speaker 4: What are they trying to do here?
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  Speaker 6: Yeah, thanks so much, Paul. So I think there's really
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  Speaker 6: two things that they're trying to do. One is kind
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  Speaker 6: of really make sure that the setup for 2027 looks good. Remember,
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  Speaker 6: they had promised us double digit EPS growth into 2027.
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  Speaker 6: That's after almost 16 percent EPS growth this year. And
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  Speaker 6: this is really going to be, you know, I think
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  Speaker 6: investors are really looking at the Walt Disney Company as
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  Speaker 6: an earnings compounder. And so I think Josh tomorrow, who
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  Speaker 6: is the new CEO and who took over from Bob
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  Speaker 6: Iger in March of twenty twenty six, is really looking
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  Speaker 6: to kind of fortify that whole earnings growth story and
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  Speaker 6: that earnings narrative going forward. And then longer term, I think,
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  Speaker 6: you know, the way that Josh is really looking at
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  Speaker 6: this business is he has his two growth engines. One is,
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  Speaker 6: of course, the main one is going to be the
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  Speaker 6: streaming industry. business because that's really where they're looking to
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  Speaker 6: convert a lot of the revenue into earnings. It's becoming
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  Speaker 6: a margin story. And then, of course, parks, where they've
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  Speaker 6: already committed about $ 60 billion over a period of 10
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  Speaker 6: years to kind of invest in new attractions and cruises
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  Speaker 6: and all of that stuff. And so this is really
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  Speaker 6: him thinking about the future and future-proofing the business, both
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  Speaker 6: from an earnings and a margin perspective, as well as
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  Speaker 6: long-term growth.
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  Speaker 7: So where are the cuts going to, what divisions is
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  Speaker 7: it going to take place?
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  Speaker 6: Yeah, it's not going to be in the experiences division.
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  Speaker 6: It's not going to be in the theme parks. All
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  Speaker 6: of the cuts that we've seen so far have really
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  Speaker 6: been more on the TV side, a few cuts on
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  Speaker 6: the ESPN side. So it's probably more of what I
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  Speaker 6: would call the low priority areas, John, for Josh tomorrow.
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  Speaker 6: And he's really kind of looking to repurpose those savings
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  Speaker 6: back into the direct-to-consumer business, the streaming business, as well
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  Speaker 6: as parks over the longer term.
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  Speaker 4: We know that Comcast spun out its cable networks into
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  Speaker 4: this company called Reversant. I'm not sure how you pronounce it.
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  Speaker 4: What's Disney's strategy with ESPN, their cable networks, the broadcast networks?
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  Speaker 4: What are they doing there?
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  Speaker 6: Yeah, really good question, Paul. So, you know, for the
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  Speaker 6: longest time, obviously, and this was a question that Bob
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  Speaker 6: Iger used to keep getting asked all the time is
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  Speaker 6: what is your strategy with the linear TV networks? That,
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  Speaker 6: you know, and at one point he had even suggested
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  Speaker 6: that they might spin it out. But I think what
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  Speaker 6: they found out was, you know, just with all of
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  Speaker 6: the kind of. I guess there was a lot of synergies.
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  Speaker 6: They have sports rights that they have with ESPN, which
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  Speaker 6: is also on ABC, and then it kind of feeds
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  Speaker 6: into their streaming business. I think they found that it
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  Speaker 6: would be more problematic and kind of cumbersome to actually
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  Speaker 6: split out the business, at least as of now. So
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  Speaker 6: the way that they're kind of managing the business is, yes,
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  Speaker 6: of course, the TV business, the linear networks are in
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  Speaker 6: secular decline. That is a well-established fact. But they're managing
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  Speaker 6: the business the best that they can. And, you know,
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  Speaker 6: they're kind of milking it for cash. It still throws
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  Speaker 6: out about $ 2. 5, $ 3 billion of cash, just the linear
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  Speaker 6: TV networks. So they're managing it again as well as
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  Speaker 6: they can, not really talking about selling or spinning off
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  Speaker 6: that business. Again, using all of those sports rights to
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  Speaker 6: kind of really build out their streaming product, because that
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  Speaker 6: is one of the things that they can use to
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  Speaker 6: differentiate versus a Netflix, versus an HBO, versus a Paramount.
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  Speaker 6: The fact that they control about 40 to 45 percent
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  Speaker 6: of all marquee U.S. sports rights, that gives them a
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  Speaker 6: big advantage.
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  Speaker 7: How much in terms of efficiencies can they gain from technology?
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  Speaker 7: Is that an area that they're going to go?
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  Speaker 3: Yeah, absolutely.
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  Speaker 6: Absolutely, John. So, you know, we ran some numbers, just some,
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  Speaker 6: you know, back of the envelope math here for all
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  Speaker 6: of the job cuts that Josh DeMauro has announced ever
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  Speaker 6: since he took office. And remember, even when Bob Iger
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  Speaker 6: came back as CEO, he announced that huge $ 5.
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  Speaker 3: 5 billion cut.
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  Speaker 6: You know, cost restructuring program. They eliminated about 7,000 jobs.
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  Speaker 6: We think that these latest job cuts and the ones that,
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  Speaker 6: you know, the small targeted ones that DeMauro announced ever
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  Speaker 6: since he took over should lead to at least about
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  Speaker 6: a billion dollars in cost savings. Of course, a lot
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  Speaker 6: of that is back office, is technology, is marketing, is personnel.
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  Speaker 6: And they're, you know, again, they're going to probably reinvest
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  Speaker 6: majority of that back into the direct-to-consumer business.
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  Speaker 8: How many, how.
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  Speaker 7: Many jobs are we talking about? What's 20% of their
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  Speaker 7: total workforce?
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  Speaker 5: Yes.
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  Speaker 6: Yes. So so far, you know, all of the smaller cuts,
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  Speaker 6: we think so far from April to September, we're probably
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  Speaker 6: about 2000. The latest story that Bloomberg News broke, Thomas
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  Speaker 6: Buckley broke. We're not exactly sure. He's he mentioned thousands
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  Speaker 6: of layoffs. We don't know an exact number, but we
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  Speaker 6: think it could be another similar amount of maybe about 2000.
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  Speaker 6: So that gets you to about a one billion run
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  Speaker 6: rate of annual cost savings.
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  Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the bloomberg intelligence podcast catch us live
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  Speaker 4: Earnings last night we heard from our good friends at
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  Speaker 4: apple uh 28 billion in free cash flow they're returning
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  Speaker 4: all that to.
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  Speaker 5: Shareholders that seems like a good story to me but.
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  Speaker 4: Maybe some concerns about the margins there. Anurag Rana, Bloomberg
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  Speaker 4: Intelligence Senior Technology Analyst. He's been covering Apple, the stock,
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  Speaker 4: for decades. What did you learn last night, Anurag, from
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  Speaker 4: our good friends from Cupertino?
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  Speaker 3: Yeah, I think the margin story is the most important one.
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  Speaker 3: And almost, you know, I would say over the last
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  Speaker 3: six to nine months, we've been talking about the impact
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  Speaker 3: of higher memory prices. You know, so far, Apple's executed
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  Speaker 3: very well. They've been able to offset a lot of
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  Speaker 3: that stuff. But it seems now with their guidance that
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  Speaker 3: they will see the impact of those higher input costs.
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  Speaker 3: And I think that's the story. And we don't think
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  Speaker 3: this is going to be a one-quarter issue. I think
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  Speaker 3: this is going to be the big deal over the
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  Speaker 3: next 12 months for them.
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  Speaker 7: So the margin pressure shows us that Apple is not
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  Speaker 7: immune from some of the AI pressures?
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  Speaker 3: Well, it's so much not directly from the AI pressures,
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  Speaker 3: but because AI data centers are buying so much memory
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  Speaker 3: and there's only so much memory chips in the world,
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  Speaker 3: it has having an impact on the other areas as well,
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  Speaker 3: which has actually led to a massive decline in the
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  Speaker 3: PC industry. In the case of Apple, you know, they're
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  Speaker 3: still showing good top line growths. But, you know, the
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  Speaker 3: input cost is where they are seeing the bigger impact.
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  Speaker 5: What's the early feedback on this new CEO dude, John Ternes?
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  Speaker 3: I think that he did a very good job of
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  Speaker 3: explaining the product strategies and product focus. I think if
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  Speaker 3: I read it right, if he's going to spend a
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  Speaker 3: lot more time doing product development, we may see a
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  Speaker 3: lot more innovation coming out of Apple, which has really
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  Speaker 3: not been the case over the last several years.
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  Speaker 7: I wanted to ask you, how do they, as a developer,
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  Speaker 7: monetize artificial intelligence?
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  Speaker 3: See, one of the things is you have to embed
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  Speaker 3: it in the operating system so you don't really lose
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  Speaker 3: users to a rival operating system. In the case right now,
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  Speaker 3: Samsung has done a very good job of adding Gemini
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  Speaker 3: to its Android devices throughout the world. So it is
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  Speaker 3: something that if Google's Android can do this, why can't Apple?
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  Speaker 3: And I think being a premium product, they really need
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  Speaker 3: to embed that across their entire ecosystem, whether that's a Mac,
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  Speaker 3: whether that's your phone and help you do those things
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  Speaker 3: that you really don't need to go to the chat
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  Speaker 3: GPT app to get that work done. And you can
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  Speaker 3: do it natively on iOS.
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  Speaker 4: What's the latest on China? Cause that is so critical
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  Speaker 4: to this company.
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  Speaker 3: You know, I think the headlines is basically that they
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  Speaker 3: missed on China sales. But I do not know why
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  Speaker 3: consensus was expecting 29 percent growth in China. So, you know,
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  Speaker 3: I was a little more modest in that case. But
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  Speaker 3: they did grow over 20 percent in China for three
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  Speaker 3: consecutive quarters. I think that's a very good number. You know,
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  Speaker 3: we should see a repeat of that next quarter as well. Now,
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  Speaker 3: the case with China is for a very long period
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  Speaker 3: of time, they stopped growing there. And as I'm saying,
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  Speaker 3: in the last few quarters, they've done a very good
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  Speaker 3: job of being able to tap into the lower end
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  Speaker 3: market and gain some market share. Now, I think they're
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  Speaker 3: going to gain on the higher end market with the
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  Speaker 3: Duo as well, because affordable is a device that, you know,
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  Speaker 3: folks in China like a lot.
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  Speaker 7: And to be sure that the Duo wasn't included in
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  Speaker 7: this quarter, do we have any sort of reading on
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  Speaker 7: how that's doing?
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  Speaker 3: Yeah, the duo was not included in the results that
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  Speaker 3: came out yesterday, but it is in the guidance for
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  Speaker 3: next quarter, which is total revenue growth of 7% to 10%.
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  Speaker 3: Going into the quarter, consensus was at 6% growth. So
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  Speaker 3: this is a very strong guidance, especially remember, they have
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  Speaker 3: raised rates on the higher-end models, all of them, Pro,
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  Speaker 3: Pro Max, and the duo is $ 2, 000. What has happened
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  Speaker 3: in the smartphone industry when prices have gone up, unit
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  Speaker 3: shipments have declined so much. But it seems the case
• 9:47
  Speaker 3: of Apple that they are holding not only to their
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  Speaker 3: market share, but they are letting or the users are
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  Speaker 3: willing to pay a higher premium for Apple devices.
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  Speaker 4: You have your Duo order in, Anurag?
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  Speaker 3: Yes, yes. It's going to come the last week of November.
• 10:02
  Speaker 7: It's the first time in a long time that I
• 10:03
  Speaker 7: saw lines outside stores for the Apple.
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  Speaker 5: Yep, I did too.
• 10:07
  Speaker 4: Outside the Fifth Avenue store here, the flagship store in
• 10:09
  Speaker 4: New York City, lines kind of like the old days.
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  Speaker 7: And most of the people were not buying it for themselves.
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  Speaker 7: They were reselling it.
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  Speaker 5: Reselling it, yeah, exactly. We see them on the corner.
• 10:18
  Speaker 3: One of the things is the lease program is very,
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  Speaker 3: very appetizing, and that can reduce the payment volume, I
• 10:23
  Speaker 3: mean the payments by a consumer.
• 10:26
  Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this.
• 10:33
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 1: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 10:40
  Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever
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  Speaker 1: you get your podcasts or watch us live on YouTube.
• 10:48
  Speaker 5: Let's talk the restaurant business. And we do that. We
• 10:52
  Speaker 5: do that with Michael Halen.
• 10:53
  Speaker 4: He covers all the restaurants and food services companies for
• 10:55
  Speaker 4: Bloomberg Intelligence.
• 10:57
  Speaker 5: Yum Brands. What's going on there, Mike? What do we
• 11:01
  Speaker 5: hear from them?
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  Speaker 2: Yeah, we heard that the recovery at Taco Bell really
• 11:07
  Speaker 2: picked up in this last four weeks. You know, they
• 11:10
  Speaker 2: mentioned that same-source sales were up about 3% at the chain,
• 11:14
  Speaker 2: and the trailing four weeks ended Friday, which is a pretty.
• 11:20
  Speaker 8: Big improvement from negative same-source.
• 11:22
  Speaker 2: Sales last quarter due to their implication in the cyclospora outbreak.
• 11:27
  Speaker 8: So, you know.
• 11:29
  Speaker 2: Investors can now kind of start to focus on the
• 11:33
  Speaker 2: fact that, you know, they've divested Pizza Hut and that
• 11:37
  Speaker 2: makes it a much.
• 11:38
  Speaker 8: Faster growing, more profitable company.
• 11:42
  Speaker 2: You know, Pizza Hut for years has been a drag
• 11:44
  Speaker 2: on same source sales, net unit growth and profitability. And so,
• 11:48
  Speaker 2: you know, getting that yoke off its neck, we think
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  Speaker 2: is really going to drive pretty strong results here over
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  Speaker 2: the next 12 months.
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  Speaker 7: Yeah, parasites and tacos. You don't want that. How much
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  Speaker 7: does Taco Bell typically contribute to Yum's bottom line?
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  Speaker 2: Yeah, Taco Bell right now is a very big contributor,
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  Speaker 2: even bigger now that they've gotten rid of Pizza Hut.
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  Speaker 2: It's smaller than KFC, but KFC is a monster globally.
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  Speaker 2: has a huge international business. But Taco Bell is a
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  Speaker 2: nice chunk of their bottom line profitability.
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  Speaker 8: And most of that is in the United States.
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  Speaker 2: It's starting to support the strong U.S. seamstress sales and
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  Speaker 2: unit growth with some international expansion. They mentioned a bunch
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  Speaker 2: of markets that they've been moving into this year. So,
• 12:47
  Speaker 2: you know, cyclospore definitely hurt Paco Bell here in the
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  Speaker 2: third quarter. It's definitely not quite back to its mid-single-digit
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  Speaker 2: same-store sales growth that everyone's become so accustomed to.
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  Speaker 8: But they're getting back there.
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  Speaker 4: With the divestiture of Pizza Hut, and I have very
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  Speaker 4: fond memories of Pizza Hut back from Richmond, Virginia, college days.
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  Speaker 5: That's all we had, dude, in Richmond.
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  Speaker 4: Do you think they might look to grow via acquisition
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  Speaker 4: at some point now that they've kind of gotten rid
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  Speaker 4: of the slower growth Pizza Hut?
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  Speaker 8: Yeah, I think that's an opportunity down the line.
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  Speaker 2: I don't think that's necessarily their focus right now. I
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  Speaker 2: would suggest their number one focus is getting KFC in
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  Speaker 2: the United States humming again, right? This is a brand
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  Speaker 2: that's kind of, you know, been a roller coaster, I
• 13:39
  Speaker 2: would suggest, over the last decade, 15 years, right? They've
• 13:43
  Speaker 2: had periods of strong top-line same-store sales growth, and then
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  Speaker 2: they've struggled at times, right? And so right now, that
• 13:51
  Speaker 2: is the major focus. I would suggest once KFC US
• 13:57
  Speaker 2: has been improved, then they could look outside the of
• 14:03
  Speaker 2: the enterprise for acquisitions.
• 14:05
  Speaker 7: What do they say about, you know, the drive for
• 14:08
  Speaker 7: more healthy eating, especially with these stupid kids, and also
• 14:15
  Speaker 7: with the GLP-1 medications?
• 14:19
  Speaker 8: Yeah, you know, not too much.
• 14:21
  Speaker 2: You know, their customers, the people that they're looking for
• 14:25
  Speaker 2: aren't necessarily GLP-1 users.
• 14:26
  Speaker 7: This isn't the healthy crowd.
• 14:32
  Speaker 2: They're more focused right now on value, on innovation, providing
• 14:38
  Speaker 2: their customers with innovative new products by offering customizable value.
• 14:47
  Speaker 8: And continuing their strong marketing program.
• 14:51
  Speaker 2: They are very intertwined with culture, Taco Bell, and it's
• 14:58
  Speaker 2: a big reason why it's been so successful now for
• 15:00
  Speaker 2: so long.
• 15:01
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