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No shareholder likes to learn that a company they’ve invested in is about to incur more costs than previously expected. That was the dynamic behind Warner Bros. Discovery‘s (WBD -8.93%) nearly 9% stock price decline on Thursday following the release of its latest update on its restructuring plans.
In a regulatory filing, the entertainment company divulged that it expects to incur pre-tax restructuring charges of $4.1 billion to $5.3 billion.
Warner Bros. Discovery was formed when telecom giant AT&T spun off its Warner Media unit, which then merged with Discovery in April. Restructuring charges were expected as the newly united businesses transformed into a single operation. They weren’t expected to be this high, however. In late October, management said they would land in the $3.2 billion to $4.3 billion range.
Much of the revision is due to adjusted estimates for content impairment and development write-offs. Previously, management had anticipated these write-offs would total between $2 billion and $2.5 billion. Now, management expects they will land in the range of $2.8 billion to $3.5 billion. This is quite a substantial increase, and it’ll surely impact the bottom line, as such costs are recorded on the profit and loss statement.
Warner Bros. Discovery added in its disclosure that is not adjusting its prior estimates for other costs, including organizational restructuring, facility consolidation, and cash expenditures.
This might not be the end of the story. In the filing, Warner Bros. Discovery added that its “restructuring efforts are ongoing and could result in additional impairments above the revised estimates.” On the brighter side, the company said that it continues to expect these efforts will be “substantially completed,” by the end of 2024.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Warner Bros. Discovery. The Motley Fool has a disclosure policy.
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