The Disney CFO who raised doubts about Bob Chapek has respect for the street

Christine McCarthyWalt Disney Co.

The longtime finance chief took an unusual step when he expressed a lack of confidence in the chief executive to the entertainment giant’s directors.

Finance bosses usually stick with their CEO’s strategy and are not known to commonly speak out against them. But Ms McCarthy had expressed concerns to Disney directors, The Wall Street Journal reported earlier this week. Bob Chapek stepped out as CEO on Sunday.

“She’s respected and well regarded by the board, so she has strength. He has the clout, influence and history with the board,” said Jonathan Kees, a senior research analyst at a subsidiary of Daiwa Securities Group Inc., the Japanese investment bank.

Equipped with a bachelor’s degree in biology from Smith College and a master’s degree in business administration in marketing and finance from the UCLA Anderson School of Management, Ms. McCarthy joined Disney in 2000 after years in banking, including as chief financial officer of Imperial Bancorp.

She was hired as treasurer of Disney and has gained additional responsibilities over the years, becoming executive vice president overseeing real estate and operations along with her duties as treasurer in 2005. She also covered corporate procurement, alliances and partnerships in 2008 and in 2015—after 15 years as treasurer, she succeeded Jay Rasulo as chief financial officer, the first woman to assume that role at Disney.

Ms. McCarthy’s promotion to CFO came after Mr. Rasulo and his predecessor, former CFO Tom Staggs, fought over who would succeed Robert Iger as CEO. Both eventually resigned from the company.

His first steps as CFO were not easy. During her first earnings call as finance chief in August 2015, with Mr. Iger, Ms. McCarthy made a cut on the company’s prospects for its cable business, indicating cable cutting.

“In many ways, this has had a cascading impact on investor sentiment toward Disney and the broader media industry for years to come,” said Kutgun Maral, a media analyst at RBC Capital Markets, an investment firm. financial services.

People who knew her when she was treasurer and oversaw the Disney real estate portfolio praise her knowledge and expertise. An executive who considered buying one of Disney’s New York properties and visited the site with Ms. McCarthy described getting to know her as impressive.

She supports other female executives and a mentor for young finance talent, analysts said, and sits on several boards, including Procter & Gamble Co.

Under Ms. McCarthy’s leadership, Disney exceeded analyst expectations for reported earnings per share in 17 out of 30 quarters and completed a string of acquisitions, including leading entertainment assets 21st Century Fox in 2019. a level-headed person with a sense of right and wrong, according to people who have worked with her.

During the pandemic, when nearly half of the company’s revenue temporarily vanished as theme parks and movie theaters closed and cruise lines shut down, Ms. McCarthy remained in close contact with ratings firms and Wall Street investors, according to Neil Begley, a senior vice president at ratings firm Moody’s Investors Service. Disney took on about $23 billion in emergency cash, stopped buying back shares, suspended its dividend, and laid off thousands of workers.

“He has Wall Street ear,” said Peter Supino, a media analyst at Wolfe Research LLC, a research firm.

More than two and a half years into the pandemic, Disney’s dividend has yet to be reformulated. The company, which has $11.61 billion in cash and cash equivalents on its balance sheet, has several billion in debt maturing over the next few years.

Bob Chapek was ousted as Disney CEO on Sunday.


Photo:

MARIO ANZUONI/REUTERS

Ms McCarthy, known for her reliable forecasts among investors, recently had to report some earnings shortfalls. For two of the past six quarters, the company’s revenue has missed analyst consensus estimates, leading to questions about its streaming strategy.

One of the questions facing the company is whether it should reduce some of the targets the management team set in August. Based on these, Disney+ by the end of fiscal 2024 would have between 135 million and 165 million users in its core business and up to 80 million in its Hotstar business, which operates in India and other emerging markets. The streaming business, launched in 2019, is expected to become profitable in fiscal 2024.

Disney in November lowered its expectations for Hotstar during the first quarter of fiscal 2023 but said core subscriber growth would be broadly consistent with previous guidance. Analysts called it a missed opportunity to correct market expectations at a time of changing sentiment.

Approaching the release of earnings for the quarter ended Oct. 1, Disney’s management team didn’t prepare the market for what was to come: About $1.5 billion in losses in its streaming division, analysts said.

“They seemed a little deaf to the leaks, but that didn’t come from Christine,” said RBC’s Mr. Maral.

He is part of a group of executives who are now, in the words of returning CEO Iger, working to bring more decision-making power to the company’s creative teams and streamline costs, following the dismantling of a centralized unit that was was created under Mr. Chapek, according to a memo Mr. Iger sent to employees.

After the change in leadership, Disney faces a challenge regaining trust from the street and Ms McCarthy needs to realign with her old and new chief executive, Mr Iger, analysts said.

At age 67, Ms. McCarthy is likely to stay while Mr. Iger reviews Disney’s strategy and looks for another successor for himself, analysts said. His contract runs through June 2024, according to a filing with securities regulators.

Write to Nina Trentmann at nina.trentmann@wsj.com and Mark Maurer at mark.maurer@wsj.com

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