The stock markets are back open after a long Labor Day weekend, and Warner Bros Discovery is already bracing traders for a bit of bad news. On Tuesday, the company revealed that the ongoing writers and actors strikes will negatively impact its 2023 earnings (before interest, taxes, depreciation, and amortization) to the tune of $300-$500 million.
Helping to cushion the blow, however, is a revised forecast for the company’s free cash flow, which is now expected to be “at least” $5 billion. With “Barbie” dominating the box office and fewer overall expenses due to the strikes, Warner Bros. Discovery is now predicting more than $1.7 billion of free cash flow for the third quarter alone, which ends at the conclusion of this month.
Cash rules everything around us, and shares of WBD are currently trading up a few percentage points. Of course, that’s after getting absolutely C.R.E.A.M.-ed last week as collateral damage to the Charter-Disney standoff.
Why announce these revisions now? Well, there are two reasons. Most immediately, like many of the media industry’s top C-suite executives, Warner Bros. Discovery President and CEO David Zaslav is set to participate Wednesday at investment bank Goldman Sachs’ annual Communacopia and Technology Conference. He knows he’s going to get grilled there on the impacts of the ongoing WGA and SAG-AFTRA strikes. And next week, Zaslav’s CFO Gunnar Wiedenfels is taking a turn at the Bank of America Securities 2023 Media, Communications & Entertainment Conference. So they decided to get ahead of things; smart.
The other reason for the timing of this reveal is that about a month ago, Zaslav, Wiedenfels, and the rest of the Warner Bros. Discovery senior-executive team on the company’s second-quarter earnings conference call, predicted that the strikes would be over by now. (Specifically, the assumption was a resolution “by early September.”) While the company noted at the time that exactly today’s update — more free cash flow, less EBITDA — would happen should the strikes continue through the end of the year, it is now time to put some numbers to that now-probable reality.
As part of its Tuesday announcement, Warner Bros. Discovery said it is continuing “to prioritize and work diligently with other industry leadership to resolve the current WGA and SAG-AFTRA strikes in a manner that is fair and values the important work of, and partnership with, the writers and actors.”
“While WBD is hopeful that these strikes will be resolved soon, it cannot predict when the strikes will ultimately end,” it continued. “With both guilds still on strike today, the company now assumes the financial impact to WBD of these strikes will persist through the end of 2023.”
