Warner Bros. cuts EBITDA outlook, ups free cash flow as Hollywood strikes drag on

As the Hollywood actors and writers strike drags on, the impacts are expected to show up in 2023 financials for Warner Bros. Discovery, which on Tuesday trimmed its full year adjusted EBITDA forecast by up to half a billion dollars, predominately due to strike-related factors.

The ongoing dual Writers Guild of America (WGA) and SAG-AFTRA strikes forced a work stoppage over the summer and are anticipated to weigh on WBD’s 2023 results, with the company updating guidance stating the assumption financial impacts will persist through the end of 2023. Writers have been on strike since May 2, with actors joining in July 14.

The company expects adjusted EBITDA (earnings before interest, taxes depreciation and amortization) will take a negative $300 million to $500 million hit. WBD attributed this mainly to impacts of the strike and lowered adjusted EBITDA expectations for the full year to the range of $10.5 to $11 billion.

That’s changed from the company’s August 3 Q2 earnings call, which in filings, WBD said was made on the assumption strikes would be resolved by early September. 

“While WBD is hopeful that these strikes will be resolved soon, it cannot predict when the strikes will ultimately end,” wrote WBD in an SEC 8-K filed Tuesday.

It expects incremental hits to adjusted EBITDA alongside incremental improvements in free cash flow as it reduces costs associated with the strike. But as Hollywood remains at a standstill, WBD could find itself with a somewhat dry well for fresh content. In the filling WBD cited strikes’ impact on “timing and performance of the remainder of the 2023 film slate, as well as the Company’s ability to produce and deliver content.”

Still, with strike-related factors at play plus the mega blockbuster Barbie, the company anticipates more free cash flow. WBD raised its free cash flow expectations for 2023 to at least $5 billion, including exceeding $1.7 billion in free cash flow for the third quarter, which it attributed in part due to Barbie’s smash hit performance alongside incremental strike-related impacts.

The company also said it’s maintaining targets of achieving net leverage below 4.0x by the end of 2023 and its gross leverage range of 2.5x-3.0. by the end of 2024. The company plans to update any assumptions based on timing and any additional impacts from the strike eventually resolving.

“WBD continues 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,” WBD stated in the filing.

CEO David Zaslav is scheduled to speak at the Goldman Sachs Communacopia & Technology Conference on Wednesday, September 6.

In an August study by Horizon Media, the company found that the majority of consumer viewers are supportive of the strike, largely siding with union-represented creatives over the studios, networks and streaming services negotiated on behalf of by the AMPTP. However, that support didn’t extend to consumers’ willingness to pay higher subscription costs to support union demands.