Warner Bros Discovery warns Hollywood strikes may hit performance

By Helen Coster and Samrhitha Arunasalam

(Reuters) -Warner Bros Discovery (NASDAQ:) warned Thursday that the dual Hollywood strikes by writers and actors could hit its flagging studio business already bruised by high-profile box office flops including “The Flash.”

The strikes have disrupted most of the production for the fall TV season and halted work on films as workers battle over pay in the streaming era. Toymaker Hasbro (NASDAQ:) also flagged a hit from the strike on Thursday.

The shutdowns “may have implications for the timing and performance of the remainder of the film slate as well as our ability to produce and deliver content,” Warner Bros Discovery CFO Gunnar Wiedenfels said. “While we are hoping for a fast resolution, our modeling assumes a return-to-work date in early September.”

The company’s revenue took a hit in the second quarter due to soft box office results. Studio revenue came in at $2.58 billion, far below estimates of $3.21 billion, according to Visible Alpha.

The company also incurred marketing costs for its “Barbie” film, which it released to huge box office success in July.

“Although the company is riding a pink wave of success from Barbie’s theatrical run, other features and the dramas Warner Bros Discovery is so well known for are on ice until negotiations pick back up,” Third Bridge analyst Jamie Lumley said.

Shares of the company, forged by the union of WarnerMedia and Discovery Inc, fell 1.3%, having risen by nearly a third so far in 2023.

Overall, second-quarter revenue came in at $10.36 billion, missing estimates of $10.44 billion, according to Refinitiv data.

The direct-to-consumer unit posted revenue of $2.73 billion, beating estimates of $2.48 billion. It lost 1.8 million subscribers, more than Visible Alpha estimates of 1.1 million.

Total global subscribers for its HBO, Max and Discovery+ services stood at 95.8 million at the end of the quarter.

Under CEO David Zaslav, Warner Bros Discovery has been seeking to run its direct-to-consumer business more efficiently. Zaslav said Thursday that the streaming business is “tracking well ahead of our financial projections,” generating positive core earnings in the first half of 2023.

Company executives said on a post-earnings call that they were confident the company will achieve $4 billion in total synergies much sooner than previously thought.

They said they see a “clear path” to the company achieving $5 billion or more in total synergies through 2024 and beyond.

The company cut expenses by 16% in the quarter, helping reduce its net loss to $1.24 billion from a loss of $3.42 billion a year earlier.

Free cash flow came in at $1.72 billion in the three months ended June, beating estimates of $987 million. The company expects full-year free cash flow in the range of $4.5 billion to $5 billion.