Disney Plans Thousands of Layoffs, Targeting 20% Cost Savings

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0:24 Our good friends at the Walt Disney Company, they need to cut costs by, I think they're talking 20% cut in annual cost savings through some job cuts and some other cost of board.

0:32 Stuff there.

0:32 So time's, I guess, a little tough there with Mickey Mouse. Geetha Ranganathan, she joins us here. She's the media analyst for Bloomberg Intelligence. Geetha, what's Disney, what's the strategy behind trying to cut 20% of your costs here for Disney? What are they trying to do here?

0:47 Yeah, thanks so much, Paul. So I think there's really two things that they're trying to do. One is kind of really make sure that the setup for 2027 looks good. Remember, they had promised us double digit EPS growth into 2027. That's after almost 16 percent EPS growth this year. And this is really going to be, you know, I think investors are really looking at the Walt Disney Company as an earnings compounder. And so I think Josh tomorrow, who is the new CEO and who took over from Bob Iger in March of twenty twenty six, is really looking to kind of fortify that whole earnings growth story and that earnings narrative going forward. And then longer term, I think, you know, the way that Josh is really looking at

1:30 this business is he has his two growth engines. One is, of course, the main one is going to be the streaming industry. business because that's really where they're looking to convert a lot of the revenue into earnings. It's becoming a margin story. And then, of course, parks, where they've already committed about $ 60 billion over a period of 10 years to kind of invest in new attractions and cruises and all of that stuff. And so this is really him thinking about the future and future-proofing the business, both from an earnings and a margin perspective, as well as long-term growth.

2:00 So where are the cuts going to, what divisions is it going to take place?

2:05 Yeah, it's not going to be in the experiences division. It's not going to be in the theme parks. All of the cuts that we've seen so far have really been more on the TV side, a few cuts on the ESPN side. So it's probably more of what I would call the low priority areas, John, for Josh tomorrow. And he's really kind of looking to repurpose those savings back into the direct-to-consumer business, the streaming business, as well as parks over the longer term.

2:36 We know that Comcast spun out its cable networks into this company called Reversant. I'm not sure how you pronounce it. What's Disney's strategy with ESPN, their cable networks, the broadcast networks? What are they doing there?

2:50 Yeah, really good question, Paul. So, you know, for the longest time, obviously, and this was a question that Bob Iger used to keep getting asked all the time is what is your strategy with the linear TV networks? That, you know, and at one point he had even suggested that they might spin it out. But I think what they found out was, you know, just with all of the kind of. I guess there was a lot of synergies.

3:11 They have sports rights that they have with ESPN, which is also on ABC, and then it kind of feeds into their streaming business. I think they found that it would be more problematic and kind of cumbersome to actually split out the business, at least as of now. So the way that they're kind of managing the business is, yes, of course, the TV business, the linear networks are in secular decline. That is a well-established fact. But they're managing the business the best that they can. And, you know, they're kind of milking it for cash. It still throws out about $ 2. 5, $ 3 billion of cash, just the linear TV networks. So they're managing it again as well as they can, not really talking about selling or spinning off

3:51 that business. Again, using all of those sports rights to kind of really build out their streaming product, because that is one of the things that they can use to differentiate versus a Netflix, versus an HBO, versus a Paramount. The fact that they control about 40 to 45 percent of all marquee U.S. sports rights, that gives them a big advantage.

4:14 How much in terms of efficiencies can they gain from technology? Is that an area that they're going to go?

4:21 Yeah, absolutely.

4:23 Absolutely, John. So, you know, we ran some numbers, just some, you know, back of the envelope math here for all of the job cuts that Josh DeMauro has announced ever since he took office. And remember, even when Bob Iger came back as CEO, he announced that huge $ 5.

4:39 5 billion cut.

4:41 You know, cost restructuring program. They eliminated about 7,000 jobs. We think that these latest job cuts and the ones that, you know, the small targeted ones that DeMauro announced ever since he took over should lead to at least about a billion dollars in cost savings. Of course, a lot of that is back office, is technology, is marketing, is personnel.

5:03 And they're, you know, again, they're going to probably reinvest majority of that back into the direct-to-consumer business.

5:09 How many, how.

5:10 Many jobs are we talking about? What's 20% of their total workforce?

5:14 Yes.

5:15 Yes. So so far, you know, all of the smaller cuts, we think so far from April to September, we're probably about 2000. The latest story that Bloomberg News broke, Thomas Buckley broke. We're not exactly sure. He's he mentioned thousands of layoffs. We don't know an exact number, but we think it could be another similar amount of maybe about 2000.

5:35 So that gets you to about a one billion run rate of annual cost savings.

5:40 Stay with us. More from Bloomberg Intelligence coming up after this.

5:48 You're listening to the bloomberg intelligence podcast catch us live weekdays at 10 a.m eastern on apple carplay and android auto with the bloomberg business app listen on demand wherever you get your podcasts or watch us live on youtube.

6:03 Earnings last night we heard from our good friends at apple uh 28 billion in free cash flow they're returning all that to.

6:08 Shareholders that seems like a good story to me but.

6:11 Maybe some concerns about the margins there. Anurag Rana, Bloomberg Intelligence Senior Technology Analyst. He's been covering Apple, the stock, for decades. What did you learn last night, Anurag, from our good friends from Cupertino?

6:24 Yeah, I think the margin story is the most important one. And almost, you know, I would say over the last six to nine months, we've been talking about the impact of higher memory prices. You know, so far, Apple's executed very well. They've been able to offset a lot of that stuff. But it seems now with their guidance that they will see the impact of those higher input costs.

6:42 And I think that's the story. And we don't think this is going to be a one-quarter issue. I think this is going to be the big deal over the next 12 months for them.

6:50 So the margin pressure shows us that Apple is not immune from some of the AI pressures?

6:57 Well, it's so much not directly from the AI pressures, but because AI data centers are buying so much memory and there's only so much memory chips in the world, it has having an impact on the other areas as well, which has actually led to a massive decline in the PC industry. In the case of Apple, you know, they're still showing good top line growths. But, you know, the input cost is where they are seeing the bigger impact.

7:23 What's the early feedback on this new CEO dude, John Ternes?

7:27 I think that he did a very good job of explaining the product strategies and product focus. I think if I read it right, if he's going to spend a lot more time doing product development, we may see a lot more innovation coming out of Apple, which has really not been the case over the last several years.

7:45 I wanted to ask you, how do they, as a developer, monetize artificial intelligence?

7:52 See, one of the things is you have to embed it in the operating system so you don't really lose users to a rival operating system. In the case right now, Samsung has done a very good job of adding Gemini to its Android devices throughout the world. So it is something that if Google's Android can do this, why can't Apple?

8:11 And I think being a premium product, they really need to embed that across their entire ecosystem, whether that's a Mac, whether that's your phone and help you do those things that you really don't need to go to the chat GPT app to get that work done. And you can do it natively on iOS.

8:27 What's the latest on China? Cause that is so critical to this company.

8:33 You know, I think the headlines is basically that they missed on China sales. But I do not know why consensus was expecting 29 percent growth in China. So, you know, I was a little more modest in that case. But they did grow over 20 percent in China for three consecutive quarters. I think that's a very good number. You know, we should see a repeat of that next quarter as well. Now, the case with China is for a very long period of time, they stopped growing there. And as I'm saying, in the last few quarters, they've done a very good job of being able to tap into the lower end market and gain some market share. Now, I think they're going to gain on the higher end market with the Duo as well, because affordable is a device that, you know,

9:11 folks in China like a lot.

9:13 And to be sure that the Duo wasn't included in this quarter, do we have any sort of reading on how that's doing?

9:20 Yeah, the duo was not included in the results that came out yesterday, but it is in the guidance for next quarter, which is total revenue growth of 7% to 10%. Going into the quarter, consensus was at 6% growth. So this is a very strong guidance, especially remember, they have raised rates on the higher-end models, all of them, Pro, Pro Max, and the duo is $ 2, 000. What has happened in the smartphone industry when prices have gone up, unit shipments have declined so much. But it seems the case of Apple that they are holding not only to their market share, but they are letting or the users are willing to pay a higher premium for Apple devices.

9:56 You have your Duo order in, Anurag?

9:59 Yes, yes. It's going to come the last week of November.

10:02 It's the first time in a long time that I saw lines outside stores for the Apple.

10:06 Yep, I did too.

10:07 Outside the Fifth Avenue store here, the flagship store in New York City, lines kind of like the old days.

10:12 And most of the people were not buying it for themselves. They were reselling it.

10:15 Reselling it, yeah, exactly. We see them on the corner.

10:18 One of the things is the lease program is very, very appetizing, and that can reduce the payment volume, I mean the payments by a consumer.

10:26 Stay with us. More from Bloomberg Intelligence coming up after this.

10:33 You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

10:48 Let's talk the restaurant business. And we do that. We do that with Michael Halen.

10:53 He covers all the restaurants and food services companies for Bloomberg Intelligence.

10:57 Yum Brands. What's going on there, Mike? What do we hear from them?

11:03 Yeah, we heard that the recovery at Taco Bell really picked up in this last four weeks. You know, they mentioned that same-source sales were up about 3% at the chain, and the trailing four weeks ended Friday, which is a pretty.

11:20 Big improvement from negative same-source.

11:22 Sales last quarter due to their implication in the cyclospora outbreak.

11:27 So, you know.

11:29 Investors can now kind of start to focus on the fact that, you know, they've divested Pizza Hut and that makes it a much.

11:38 Faster growing, more profitable company.

11:42 You know, Pizza Hut for years has been a drag on same source sales, net unit growth and profitability. And so, you know, getting that yoke off its neck, we think is really going to drive pretty strong results here over the next 12 months.

11:55 Yeah, parasites and tacos. You don't want that. How much does Taco Bell typically contribute to Yum's bottom line?

12:07 Yeah, Taco Bell right now is a very big contributor, even bigger now that they've gotten rid of Pizza Hut. It's smaller than KFC, but KFC is a monster globally. has a huge international business. But Taco Bell is a nice chunk of their bottom line profitability.

12:33 And most of that is in the United States.

12:34 It's starting to support the strong U.S. seamstress sales and unit growth with some international expansion. They mentioned a bunch of markets that they've been moving into this year. So, you know, cyclospore definitely hurt Paco Bell here in the third quarter. It's definitely not quite back to its mid-single-digit same-store sales growth that everyone's become so accustomed to.

13:03 But they're getting back there.

13:05 With the divestiture of Pizza Hut, and I have very fond memories of Pizza Hut back from Richmond, Virginia, college days.

13:11 That's all we had, dude, in Richmond.

13:14 Do you think they might look to grow via acquisition at some point now that they've kind of gotten rid of the slower growth Pizza Hut?

13:22 Yeah, I think that's an opportunity down the line.

13:25 I don't think that's necessarily their focus right now. I would suggest their number one focus is getting KFC in the United States humming again, right? This is a brand that's kind of, you know, been a roller coaster, I would suggest, over the last decade, 15 years, right? They've had periods of strong top-line same-store sales growth, and then they've struggled at times, right? And so right now, that is the major focus. I would suggest once KFC US has been improved, then they could look outside the of the enterprise for acquisitions.

14:05 What do they say about, you know, the drive for more healthy eating, especially with these stupid kids, and also with the GLP-1 medications?

14:19 Yeah, you know, not too much.

14:21 You know, their customers, the people that they're looking for aren't necessarily GLP-1 users.

14:26 This isn't the healthy crowd.

14:32 They're more focused right now on value, on innovation, providing their customers with innovative new products by offering customizable value.

14:47 And continuing their strong marketing program.

14:51 They are very intertwined with culture, Taco Bell, and it's a big reason why it's been so successful now for so long.

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