Spoke too soon

Well, no sooner did I open my mouth about the relative amount of freeze in new hiring and the lack of layoffs to date at Disney, and then they go and offer buyouts to people today!

If we believe a recent Jim Hill discussion completely (and why wouldn’t we, Jim’s stuff is top notch of course), maybe the folks at Disney didn’t hear in Obama’s inaugural speech what they had hoped for in terms of a bright future, prosperity soon, etc.  I thought the new President’s speech was solid and well crafted, but like Tom Brokow I didn’t find it quite as high minded as some of the other notable speeches from JFK, Roosevelt, and others.  It will surely be remembered, and it was a very good speech, just not an ‘I have a dream’ speech.

One thing I don’t know if many of you caught however was that the newest young ladies at the White House got a special treat last night thanks to the Disney Company.  Apparently they, friends and other family got to watch Bolt! and High School Musical and had a surprise visit from one of their favorite bands The Jonas Brothers!  I think I’d almost have rather been at that party than any of the balls.

So, if the economy looks like it’s going nowhere fast, and Disney has the best internal information on where their bookings are headed (which we won’t get an update on for couple of more weeks and which I think we can safely assume is DOWN in general), then they had to do something.  So they asked a bunch of middle and senior middle managers to take one for the team.  Shrewd.

Let’s do a little back of the napkin math (you know how much we love to do that here, it’s bred into us engineers you know).  Disney is offering packages to 600 executives to leave the company voluntarily according to the Sentinel article.  So there will be a short term hit for whatever the buyout options are (probably some amount of severance, buyout of vacation time/sick leave, maybe some vesting perks and other things like extended free tickets for part of the year).  The question is what’s the long term savings?

Let’s say the average pay of the pool of 619 is about $130,000 (they don’t say how high up or down, just senior level).  Mickey’s cost for those employees is probably something like $200,000 (that includes employer’s half of OASDI, health benefits, stock plans, etc. etc. etc.).  So if you slice out all 619 at $200k a piece, that’s about $124 million a year in savings, much of which probably goes straight to the bottom line.

Disney currently has 1.85 billion shares outstanding, so that works out to about $.068 cents PER SHARE in savings.  Let’s get a little perspective on what that means. 

A year ago Disney reported $.63 a share in income for the past comparable quarter ending in Dec. 2007 ($.40 a share for the companies fiscal fourth quarter that ended in September of 2008 BTW).  The current analyst consensus for this quarter just passed, to be posted on Feb 3rd, is $.53 a share.  Disney hasn’t given any guidance that they won’t make their numbers (though they tend to not do that in general like some other companies), so lets presume we are in the ballpark.

IF that savings HAD BEEN REALIZED in this quarter with that average, than the $.07 a share would have accounted for around 13% of the 53 cents. 

That’s nothing to sneeze at, even if your one of the 7 dwarfs.  Disney knows what the last quarter numbers are looking like already.  In fact, I bet you they knew them within a week of closing the quarter, plus or minus a penny.  So if you are management, you get on this now, look to shave 3-4 cents a share in the current quarter and another 5-7 cents from there on out.  And most importantly, nobody spent the holiday without a job.

It doesn’t sound like much, but it adds up quick.