Hasbro, Inc. (HAS) on Q1 2021 Results - Earnings Call Transcript

Operator: Greetings. Welcome to Hasbro’s First Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. Please note that this conference is being recorded. If you have any objections, you may disconnect at this time. At this time, I’d like to turn the call over to Ms. Debbie Hancock, Senior Vice President of Investor Relations. Please go ahead. Debbie Hancock: Thank you and good morning everyone. Joining me today are Brian Goldner, Hasbro’s Chairman and Chief Executive Officer; and Deb Thomas, Hasbro’s Chief Financial Officer. Today, we will begin with Brian and Deb providing commentary on the company’s performance. Then we will take your questions. Brian Goldner: Thank you, Debbie. Good morning everyone and thank you for joining us today. The first quarter was an excellent start to the year, with growth in both sell in and point of sale for our Consumer Products segment; robust engagement from gamers driving double-digit growth in the Wizards of the Coast and Digital Gaming segment; and we remain on track to deliver our full year expected revenue growth in Entertainment. I want to recognize and thank the Hasbro employees around the world who continue to work through a pandemic and we’re able to deliver such a high-quality quarter with revenue momentum, profit improvement and strong cash generation. This quarter marked the first with our new reporting segment structure, which provides a clearer view of the drivers of Hasbro revenues, profit, margin and cash generation. As we shared at our investor event in February, our Brand Blueprint succeeds as we create value from our three businesses; Hasbro Consumer Products, including toys and games; Wizards of the Coast and Digital Gaming; and Entertainment. Each has a growth plan that drives that segment, but also drives growth across Hasbro. Our teams and expanding capabilities are enabling us to unlock the full potential of our brands and company. Deb will speak to the quarterly segment performance in more detail shortly. It is clear our unique portfolio of brands and capabilities is driving long-term, sustainable profitable and cash generative growth while we invest to build bigger, better brands across a much bigger universe that includes toys and games, but also spans digital gaming and entertainment revenues. Deb Thomas: Thank you, Brian and good morning everyone. We began 2021 with a very good first quarter, which demonstrates the strength of our portfolio, our focus on driving profitable revenue growth and progress toward our commitment to strengthening our balance sheet as our goal remains to return to our stated target of two to two and a half times debt to EBITDA. Revenue grew 1%, including a positive $18 million impact from foreign exchange. Adjusted operating profit grew 15%; adjusted EBITDA increased 24%; and adjusted earnings per share were $1. Our continued focus on working capital was evident. We generated operating cash flow of $378 million and ended the quarter with $1.43 billion in cash, after paying off $300 million in debt, which was due in May and paying our quarterly dividend. Receivables declined with improved collections and the quality of receivables improved. DSO was 66 days versus 79 last year. Inventory was also down, decreasing 7% absent FX. We remain in a very healthy financial position as we invest to profitably grow. Operator: Thank you. Thank you. And our first question comes from the line of Mike Ng with Goldman Sachs. Please proceed with your question. Mike Ng: Great. Thank you very much for the question, and good morning. I just have two. First, could you talk a little bit more about the TV deliveries that are happening at eOne in the second half? Any sense of major shows that should be bigger contributors to revenue? And then second, given the strong margin performance in the quarter, could you talk about your current expectations for EBIT margins for the full year? Thank you very much. Brian Goldner: Sure. Good morning, Mike. On the first question, we’re really seeing an array of TV series that are in production for eOne as well as a number of films. We talked about that on our prepared remarks. And we’re beginning those deliveries, including The Rookie, Cruel Summer, which we just launched on Freeform, a couple of films and increasing television deliveries throughout the year. In fact, by Q2, we expect to see the growth that we’ve been talking about. And our expectation for the full year remains the same, which is the Entertainment business should grow double digits in revenue and return on television and film revenues to the levels that we saw back in 2019. As we move beyond that, as we look at long-term plans, we clearly believe in the continued growth of eOne’s business over the longer term, and we’re really seeing the Hasbro IP begin to take hold. In fact, right now, we’re already on preproduction with a planned launch of production in the next few months on the D&D, DUNGEONS & DRAGONS film. We’ve got TRANSFORMERS both television and film, MY LITTLE PONY. This feature animated CG film comes out in September on Netflix. POWER RANGERS, we have both the TV series and film that we’ll talk about going to a platform very shortly. We also have some great creative stewards on a brand like Risk that will be coming in a future period. So the Hasbro IPs are being actively developed in the television and films well under production. We do continue to use COVID protocols right now, and we believe those will dissipate as the situation continues to get better. But we feel very good about the Entertainment business for 2021 and beyond. Deb Thomas: And as far as our EBIT margins, I mean, the first quarter is generally a smaller quarter. At this point, we don’t see anything that changes our full-year outlook. Our demand has been strong, and we have positive trends in Consumer Products and whether it’s in Digital Gaming business, and Brian just talked about entertainment. So, we’re confident that, that segment can continue to deliver as well into together. We can – it can all deliver double-digit revenue growth for us for the year. But as we said in February, we’re targeting operating margins in line with our last year’s adjusted level of around 15%. Demand has been strong and that helped support it, but the impact of freight and input cost increases has become more pronounced over the past several months. And we do have plans in place to help mitigate those costs, including price increases for the second half of the year, and we’re actively working with our vendors, suppliers and customers. So for this full year, our plans continue to show that we should be in line with operating margins around last year’s adjusted level of 15%. Mike Ng: Great. Thank you, Brian. Thank you, Deb. Brian Goldner: Thanks. Operator: The next question is coming from the line of Eric Handler with MKM Partners. Please proceed with your question. Eric Handler: Thank you very much and good morning. Wonder if you could talk a little bit about the video game business at the moment, particularly MAGIC: THE GATHERING Arena mobile launch. Maybe you could talk – give a little bit of color about how just many downloads occurred, maybe the global representation there and how much it’s potentially expanding the funnel of players? And then secondly, it looks like the hot new consumer product out there is NFTs. And given that you have a lot of collectible business, have you thought much about what might make sense in the NFT business? Brian Goldner: Sure. Let me start by talking a bit about Wizards and Digital Gaming, and we’ll begin with Magic Arena. We have really seen an acceleration of Magic Arena in the first quarter. We went to full mobile launch just at the end of the quarter at March 25. It’s available both on Android and iOS, and Arena is up 24% versus a year ago, where we’ve now seen about 3.5 billion games played collectively since the beginning in the launch. The average per hour use and gameplay for the week is now back to trending at nine hours per week. As you know, we’re launching a whole array of card sets that are also simultaneously for MAGIC analog and digital. And we really saw great success in the first quarter around Kaldheim. In fact, that launch, which is early February was the biggest winter set of all time for MAGIC, and Time Spiral was also in the quarter, and that was also very successful. As we move forward now with Magic Arena up on both iOS and Android, we’ll now be entering second quarter, in fact, just launching in April, on the 23rd, Strixhaven, which is a brand-new world for MAGIC: THE GATHERING; the big new card release that will come in June, Modern Horizons, will really drive Q2’s business, and there’s a lot of excitement around that. And then by July, we have another release coming for the brand. So, we’re really seeing an acceleration of downloads. In fact, it’s as good or even better than the team had anticipated. People are really enjoying the play, it’s translated very well to the mobile format, and we’ll continue to monitor and look at what appears to be an accelerating MAGIC business. The NFT is a real opportunity for us. As you know, we have so many brands that really operate on multiple demographic levels, whether it’s TRANSFORMERS or the MAGIC and D&D brands, brands like G.I. Joe. And we have a team that’s leading our effort out of the West Coast. We have our arms around this and see multiple opportunities on the NFT side, and you’ll hear more about that as we move forward. But we are actively developing our opportunity here, and we do see it as substantial. Eric Handler: Thank you very much. Operator: Our next question is from the line of Steph Wissink with Jefferies. Please proceed with your question. Steph Wissink: Thank you. Good morning, everyone. Brian Goldner: Good morning. Steph Wissink: I just had a couple of housekeeping questions. Deb, this one is for you. I think you mentioned in your remarks on Wizards that some expense cadence is going to impact future quarters more significantly and, I think, Brian, you mentioned Q2 was going to be the biggest quarter. Just hoping – wondering if you can help us think up expenses and revenues in the Wizards business. And then, Brian, on your comment on the Entertainment business growing back to that 2019 level for the year, can you help us think about the cadence by quarter? I just want to make sure that we’re thinking through puts and takes the pro rata kind of through the balance of the year or is there going to be some higher and lower quarters as we think about Q2 versus Q3 and Q4? Thank you. Brian Goldner: Sure. So, I’ll start, and then I’ll let Deb comment on your question. So, as we look at eOne throughout the year, we’ve said Q2, we expect to see growth, and we’re seeing our deliveries really come in. I think Q3, that will accelerate and then Q4, we’ll see how many additional deliveries come in Q4 or whether certain episodes get delivered in the first quarter of 2022. But again, for the full year, we have a plan in place that gets us double-digit revenue growth, very robust sales. The teams executed across multiple platforms and productions. And increasingly, Hasbro IP comes into the mix. There’s a number of unscripted shows for Hasbro IP that we didn’t mention but are also under way. And so we feel very good about that business. We had also said that all along that in Q1 a year ago, we were still receiving theatrical revenues, and it happened to be a very big theatrical quarter for us. And clearly, just given the timing of closures, we would be up against those revenues this year. And we had mentioned that in our Investor Day as well as in our first quarter conference call. So again, the team is doing an excellent job that are really engaged in developing Hasbro IP and delivering a whole array of very entertaining shows and upcoming movies for the marketplace. Deb Thomas: As far as the cadence of Wizards, you’re right, Steph, it’s the varying nature of the set releases really does impact the shipments for year-over-year trends. And the release cadence this year gives us an expectation that the second quarter will be the biggest quarter of the year, it’s our current expectation anyway, of the year for Wizards. So, Q1 of last year had some revenues pulled forward to avoid COVID logistical issues, but they – obviously, they comp very well because of the strength of releases. The momentum is there and the spring set timing will be in Q2 of this year versus Q1 of last year. So that, with some incremental game launches in the second quarter, which don’t have a comp on the digital side, that’s what kind of gives us the belief of the second quarter being higher than the other quarters. And so that if we look back on that business, we can see it fluctuates from time to time. And the digital revenue, and as that ramps, will have the depreciation that goes with that. So while Arena, we started to have – Arena mobile, we started to have some expense in the first quarter, you’ll see a bit more of that ramping with those digital games being developed. And that’s why we continue to believe that full year operating profit margin that segment is expected to be more in line with the 2019 levels for the full year of 38.7% versus the 46.4% than we had last year. Steph Wissink: Very helpful. Thank you. Operator: Our next question comes from the line of David Beckel with Berenberg Capital. Please proceed with your question. David Beckel: Hey, thanks a lot for the questions. I have two, if I could. First one, just on Arena or MAGIC in general, I guess really impressive growth, obviously, from Arena in the quarter. I’m curious, do you have the data sets of – capable of giving you a holistic picture of your player base? I’m curious more specifically if that growth is coming at the expense of tabletop or if you’re actually expanding the market base, and whether or not you expect mobile to further expand the market base. That’s my first question. Brian Goldner: Yes. Sure. So in fact, you’re right. The Magic Arena had historically been expanding. It’s accelerating in that effort. In fact, analog tabletop has performed incredibly well. And let me remind you that the analog and the tabletop business is performing incredibly well while people can’t get together locally in their local favorite hobby shops or local gaming shops to play the game. In fact, about a year ago, and if you looked at the hobby shops, you would have seen about 40% of global hobby shops had some capability to fulfill for either curbside pickup or some kind of e-com. And today, that’s well over 80%, and we’ve tried to help foster those capabilities and building card sets and releases that would be enabling this local hobby shops to really participate. But we do expect an additional tailwind on the analog business when we’re starting to see that as markets begin to reopen and people can begin to get back together again. And so that’s obviously a major contributor to people is being able to play and also the opportunity to continue to share an individual gamer’s passion with new gamers to the game. People get invited to come along and learn how to play MAGIC all the time. So yes, it’s expansive. No, there is no cannibalization. And then in fact, Magic Arena is just allowing people to play at a distance who had never been able to be able reconnect with friends or family before and not necessarily be in their neighborhood. So all a net positive. David Beckel: That’s really helpful. And just a question on the Music deal. Can you – more housekeeping in nature. Can you give us the net proceed amount from that deal? I realize it was sold at a loss and maybe there’s a tax benefit. And then also what the financial impact of the divestiture will be for the – for like on a full year basis? Brian Goldner: Yes. So in fact, the business was not sold at a loss. We, in fact, sold the business on a multiple basis far over what we had paid for it. So obviously, before we – or as we were acquiring eOne, we assigned certain values to certain elements of the business, music, television, film, other goodwill, and that was back in late 2019. And so there’s a book loss, just a true-up book loss that comes as a result of the proceeds that we received from the acquisition, but we feel very good about the sale. And it was, on a multiple basis, far ahead of what we paid for it. I don’t know if you want to comment, Deb. Deb Thomas: As far as the impact on the full year, it’s not expected to be material. As we said, we expect the deal to close in the second quarter – or late in the second quarter, early in the third quarter. We would expect at that point it would reduce revenues by approximately $60 million to $70 million and maybe $15 million to $20 million in operating profit, so not material in the second half of 2021. David Beckel: Great. Thanks so much. Operator: Our next question is from the line of Arpine Kocharyan with UBS. Please proceed with your question. Arpine Kocharyan: Good morning and thanks for taking my question. I was wondering if you could comment on POS. Q1 was pretty strong across the board, helped somewhat by Easter. But do you have any color on what POS is doing into April, now that we’re comping very – sort of tough comparisons from COVID boost last year? And then I have a quick follow-up. Brian Goldner: Sure. Well, what we’ve seen is continued strength. Obviously, if you look at the games business, and I described this a bit in the remarks, our games business up until week 12 was up 30%. And then obviously, we hit where COVID really accelerated a year ago, and so games finished the quarter at minus 5% in POS. However, underlying POS during this period is still up 30% versus the 2019 pre-COVID level. So, we’re still seeing that robust gaming demand. Secondly, our toy business POS has been incredibly strong through this period and double digits up for – post Q1. The other thing that’s really important to note is that this is a period of time where we can actually supply product whereas a year ago, the POS was being generated from inventories retailers had on hand as our games factories in Massachusetts and Ireland had been closed for eight weeks. So, we now were able to supply demand. We weren’t able to supply a year ago. And similarly, supply chain disruptions had caused us to be unable to supply product during Q2 last year. Despite good strong POS, it was really coming from inventories on hand more than our ability to replenish. So, we’re seeing Q2 shape up quite well from a demand perspective. And also early on, I’ll comment from our shipments perspective. We are really seeing continued strength around the product categories. Growth in our franchise brands has really been robust around the world. In North America, Franchise Brands in Q1 grew 37%. We’re really seeing our Partner Brands grow, our e-com POS was up 34% in the first quarter with even higher numbers for several brands. Disney Princess was incredibly strong with POS up more than 60% in the first quarter, and that’s continuing as the team has launched a whole array of new innovative products. So again, it’s going to be a bit of a strange comparison on POS in Q2 as compared to a year ago, but the ability to supply product against real demand is very evident, and we’re executing on that. Arpine Kocharyan: That’s super helpful. Thank you. And then just a quick follow-up. Have your expectations changed at all for what volume under Peppa and PJ you could sort of vertically integrate in the second half of the year? Brian Goldner: No. In fact, I would say we’re as confident or even more confident. The teams have done an incredible job of working with our global retailers and selling in an array of new really inventive product. Season 9 of Peppa is really proceeding. There’s a whole line of new content coming, and I don’t want to give anything away to the fans, but including a trip to the United States for the family and a lot of product around all that and the play patterns. And really it’s just so cute and inventive. So no, we feel very good. Peppa and PJ both will have around 50 SKUs each this holiday and then we’ll continue to accelerate in 2022 as we have new products coming in that year as well. Arpine Kocharyan: Thank you very much. Operator: Our next question is from the line of Tami Zakaria with JPMorgan. Please proceed with your question. Tami Zakaria: Hi, thank you so much for taking my first question. So my first question is, do you still expect advertising expense to be 9% to 9.5% for the year, given the first quarter was light? And how should we think about this line for the rest of the year? Deb Thomas: Hi, good morning, Tami. I think we do still expect advertising to be right around that 8% to 9% of revenue level. It was light in the first quarter, not because of Consumer Products and Wizards and Digital Gaming because we had increased advertising in those particular segments. It really was because of entertainment and not having the theatrical launches that we had a year ago when we were out promoting those lines. So that’s really why you’re seeing the impact. But for a full year basis, we still expect to be in that 8% to 9% of revenue range. Tami Zakaria: Got it. 8% to 9%, got it. That’s very helpful. And then along the same lines, I think your cost of sales, excluding production cost amortization, saw about 220 basis points of deleverage in the first quarter. Do you expect that trend to continue for the rest of the year or should it be lower given you have announced price increases to your clients – consumers? Deb Thomas: Yes. So we did see that impact, you’re correct, in the first quarter. And today, we’ve been able to mitigate and absorb the increases that you’re seeing in freight there as well as the product costs, but they have become more pronounced. But in addition to our efforts, we do have to increase prices. In fact, in the second half of the year to help mitigate those rising costs. So as of right now, with blending all of that together, we do expect that, we should be able to mitigate those increases at present. Tami Zakaria: Got it. So the first quarter is really sort of the trough. That’s the highest headwind you probably saw, and it should get better throughout the rest of the year. Is that how we should be thinking about it? Deb Thomas: I think we’re seeing continued pressures, but we have plans to mitigate with price increases in the second half of the year. Tami Zakaria: Got it. Okay. That’s very helpful. Thank you so much. Operator: Thank you. Our next question is from the line of Drew Crum with Stifel. Please proceed with your question. Drew Crum: Okay. Thanks. Good morning, guys. Brian, as it relates to consumer products, do you have any insight into how retailers are planning the holiday shopping season this year? It seemed to start much earlier last year. Are you anticipating a similar shape this year or do we return to pre-COVID-19 behavior on the part of retailers? And then separately for Deb, in the press release last night, you mentioned plans to accelerate deleveraging with the sale of the Music business. Can you give a little more detail around that? Thanks. Brian Goldner: Sure. What we’re seeing around the world, and we were – it’s really great to see the growth in every region around the world for the Consumer Products business, including a real return to growth in the Europe, in Asia Pacific and Latin America in addition to very strong growth in demand in the U.S. As we look at our retailers’ plans, it’s clear that these are categories that are important – increasingly this important to retail. The growth and robust sales increases we’re seeing across our business are really important again to the consumer. So, what we’re going to see, we believe, is a number of very big promotional windows that will occur in the summertime. A few of our major retailers, already lining up around those kinds of plans and then additional opportunities and big promotional windows occurring at the beginning of Q4. So I would say it’s multiple at best for big promotional windows that will begin early but also continue and accelerate during Q4, so the holiday period. And we’re really seeing that from several different categories of retailing and our major retailers. Deb Thomas: Right. And as far as the net proceeds, as we said, we expect the deal to close late in the second quarter, perhaps early in the third quarter and we do anticipate using the proceeds to de-lever. As you recall, we structured the debt at the eOne deal, so we could prepay several components of it with no penalties. And our expectation is that we will – you will see something likely around that time frame or shortly thereafter. Drew Crum: Got it. Thanks, guys. Operator: Our next question is from the line of Gerrick Johnson with BMO Capital Markets. Please proceed with your question. Gerrick Johnson: Good morning. Thank you. I have two questions. I promise to be quick. First, you mentioned that retail inventory is down in most markets. Where was it up, and by how much and why? And then I have a follow-up, please. Brian Goldner: Sure. Retail inventory is up a little bit with our Wizards business, and it’s up a little bit in our games business. But these are very, very small increases. I would say, overall, inventory is either kind of in line with a year ago or slightly below. And it’s just where we have increasing demand and sales. Gerrick Johnson: Okay. Got it. And just to clarify, last time you said that all three segments were expected to grow revenue, adjusted operating income, and adjusted EBITDA. Is that still the case? Brian Goldner: It is. In fact, the performance in the first quarter makes us even more confident in our ability to execute a very good year, and the team is performing at a very high level. So yes, we feel very confident about the guidance that we had provided earlier this year. Gerrick Johnson: All right. Fantastic. Thank you, Brian. Operator: Our next question comes from the line of Fred Wightman with Wolfe Research. Please proceed with your question. Fred Wightman: Hey, guys. Good morning. I just wanted to follow up on Brian’s restocking comments. Are you comfortable with where retail inventories are overall today or are you seeing POS constrained in any way as a result of channel inventories? Brian Goldner: No. I think we’re feeling pretty good about inventories. And in fact, I think it should continue to drive e-com and omni sales, and we talked about it being up 70% in the quarter. That’s just – that will reflect a little bit of the mix shift in weak supply of inventory on the margin. And so you’re just seeing us continue to hone the inventories for the channel, continuing to use really good techniques in how we restock our – and using flex warehouse space for our online and omni retailers and be as efficient as possible while still fulfilling demand. And in fact, we’re lining up against continued strong demand in Q2, a lot of new initiatives coming throughout the year. In fact, we’re really excited about the number of new initiatives we have coming for the remainder of the year that run the gamut across just the multitude of our brands. We talked about some of the NERF new initiatives and new initiatives coming in action around here a couple of new films, G.I. Joe, My Little Pony. And so again, we’re lining up those inventories for those major initiatives. Fred Wightman: And then just on the games POS, is that 30% growth rate versus 2019 a good two-year expectation as we move through the year? Is there something that could cause that to change? Brian Goldner: Yes, the team’s really got an array of new games that are coming. We have really robust plans. In fact, already year-to-date, we have the number one new game in the marketplace according to NPD, which is the Foosketball, and it’s been really well received. We have a number of new games in Monopoly and several new original games coming as well. So very strong plans for games for the year obviously, in Q2 and during this like eight-, 12-week period, we have a bit of a flip on POS. But as I said, the underlying demand remains quite strong and plans for the year really look good. Fred Wightman: Great. Thank you. Operator: The next question is from the line of Devin Brisco with Bank of America. Please proceed with your question. Devin Brisco: Thanks for the question. Could you talk through the puts and takes for Partner Brands, given you’re still able to grow revenue despite tough comps in the quarter? Could you – could that segment grow more in line with your core business for the full year, just given increased Disney+ adoption and new series like The Falcon and the Winter Soldier? Brian Goldner: Well, you’re right. There’s a lot of excitement and major initiatives coming from the partnership with The Walt Disney Company. Clearly, Disney+ has an array of new content lined up. Falcon and the Winter Soldier began to ship in end of Q1, but it’s really a Q2 initiative. And we’re now seeing incredible growth in the Star Wars business, incredible growth in POS. Disney Princess, I mentioned earlier, has really strong shipments as well as more than 60% increase in POS. And then Marvel very strong around Spider-Man but also we’ll launch product for a number of films this year, including Black Widow and Chengxi. We’ll have some product for Venom. And the Eternals, which comes later in the year, is going to be a major initiative for us. So, again – and then the Spider-Man movie that comes at the end of the year. So against those three major brands, we’re certainly driving a lot of innovation and product for both Disney+ initiatives as well as the film initiatives. Devin Brisco: Thanks. That’s helpful. And related to eOne, Sony recently just signed deals with Netflix and Disney, were $3 billion combined, which is really unprecedented. And I know you recently signed output deals in the UK in Ireland with Sky. But I was hoping to get your thoughts on that deal and the implications for eOne, just in terms of how you’re thinking about investment in that business and potential for more output deals in the future. Brian Goldner: Yes. Well, look, what’s great about where we are is that eOne has historically been an organization that’s been very effective in building incredible content in a risk-mitigated way and selling to any number of partners, great relationships across the board with the OTT platforms, from Netflix to Amazon to Apple to others. We have shows on the air with all of these different outlets and then, of course, as well with broadcasters, terrestrial and satellite around the world. We continue to look at how we put Hasbro IP in the market. There’s a very strong demand for world-class IP, and Hasbro has great array of it. We’re working, as I mentioned, on a number of brands, and we’re starting to see the traction around brands like the My Little Pony, which we have talked about, is on Netflix in September; Transformers, new TV series going on another platforms; our film coming next year in partnership with Paramount. And then Power Rangers and you’ll hear more about it, but we’ve been developing that, and we expect shortly to be able to talk about the brand, new content for the brand that will go after a multitude of audiences that will be on a streaming platform. So again, a very good position for the company, and we look at all of our opportunities. But you’re right, we’ve entered an era where there’s really an unprecedented spending on content and an unprecedented desire for these great brands with great story, and eOne is expert at that. Devin Brisco: Thank you. Operator: Thank you. Our final question comes from the line of Shawn Collins with Citigroup. Please proceed with your question. Shawn Collins: Great. Thanks. Hi, Brian and Deb. Good morning. Brian Goldner: Good morning. Deb Thomas: Good morning. Shawn Collins: My question is on the sale of the eOne Music business. I’m just wondering, was this an alternative that you had planned on before the eOne acquisition in the summer of 2019? You certainly got a healthy deal multiple, 3.2 times revenue, or was this more of an opportunistic sale given a very healthy deal market? Any color would be interesting? Brian Goldner: Well, I’ll comment and let Deb comment. Look, we – from very early on, we received a lot of interest in the business. As soon as it was announced, if you remember the headlines around all these different music labels that eOne had as well, juxtapose to some of our brands, and it was really a lot of conversation and a lot of interest. We ran a very robust process. And we had a number of parties, more than 10 parties interested in the business during the process. And ultimately, we think we found the right partnership. The team is really well positioned with the buyer and this opportunity. We’ll continue to work with them on several brands for music supervision and some of our music for a number of years because they are so good at what they do. And again, it was a really robust process. It wasn’t that we were contemplating a sale, but we had the interest from the very beginning. Deb Thomas: Right. And as Brian said, we just – for us, it’s about continuing to focus on really the core strategic elements of the acquisition and how they fit into our Brand Blueprint to continue driving our company to get results like the double-digit revenue growth that we expect for this year. So go forward, we think that our music business is a great team, they’re in a great place. We look forward to working with them, and we look forward to continue growing Hasbro as a great play and entertainment company. Shawn Collins: Great. That’s helpful. Thank you very much. Operator: Thank you. At this time, I’ll turn the floor back to Debbie Hancock for closing remarks. Debbie Hancock: Thank you, Rob, and thank you, everyone, for joining the call today. The replay will be available on our website in approximately two hours. Management’s prepared remarks will also be posted on our website following this call. Thank you.
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Hasbro Inc. (NASDAQ:HAS) Q3 Earnings Report: A Mixed Financial Performance

Hasbro Inc. (NASDAQ:HAS) Q3 Earnings Report: A Mixed Financial Performance
  • Earnings Per Share (EPS) of $1.73 significantly surpassed the Zacks Consensus Estimate, indicating a strong earnings performance.
  • Revenue of $1.28 billion fell slightly short of expectations, highlighting challenges in the Consumer Products and Entertainment segments.
  • Despite a revenue miss, Hasbro's financial ratios such as a current ratio of 1.47 demonstrate the company's ability to manage short-term liabilities.

Hasbro Inc. (NASDAQ:HAS) is a well-known player in the global toy and entertainment industry. The company designs and sells a wide range of toys, games, and entertainment products. It competes with other major companies like Mattel and LEGO. On October 24, 2024, Hasbro reported its third-quarter earnings, revealing a mixed financial performance.

Hasbro's earnings per share (EPS) for the quarter were $1.73, significantly surpassing the Zacks Consensus Estimate of $1.31. This represents a 32.06% positive surprise and an improvement from the previous year's EPS of $1.64. Over the past four quarters, Hasbro has exceeded consensus EPS estimates three times, showcasing its ability to deliver strong earnings.

Despite the impressive EPS, Hasbro's revenue for the quarter was $1.28 billion, slightly below the Zacks Consensus Estimate of $1.3 billion. This shortfall represents a 1.09% negative surprise and a 14.8% decline from the $1.5 billion reported in the same period last year. The decline in revenue is attributed to underperformance in the Consumer Products and Entertainment segments.

Following the earnings release, Hasbro's stock experienced a 3.6% drop in pre-market trading on October 24. The company's financial ratios provide further insight into its performance. Hasbro's price-to-sales ratio is approximately 2.13, while its enterprise value to sales ratio stands at about 2.77. The debt-to-equity ratio is around 2.64, indicating a significant level of leverage.

Hasbro's current ratio is about 1.47, suggesting the company's ability to cover its short-term liabilities with its short-term assets. Despite the revenue miss, Hasbro has managed to exceed consensus revenue estimates twice in the last four quarters, indicating some resilience in its operations.

Morgan Stanley Upgrades Hasbro (NASDAQ:HAS) Price Target

  • Morgan Stanley analyst Megan Alexander raises the price target for NASDAQ:HAS to $79, suggesting a 27.32% potential upside.
  • Hasbro's Q2 earnings exceed expectations, driven by its digital gaming division, with a net income of $138.5 million.
  • The company's strategic pivot towards digital gaming and the Wizards of the Coast brand contributes to its financial recovery and market confidence.

Morgan Stanley's analyst Megan Alexander has recently upgraded the price target for NASDAQ:HAS, setting it at $79 from its current trading price of $62.05. This new target suggests a potential upside of 27.32%, indicating a strong confidence in Hasbro's future performance. The adjustment was announced on July 26, 2024, and has been covered by TheFly, pointing towards a bullish outlook for the company. This optimism by Morgan Stanley is rooted in Hasbro's recent financial achievements and strategic shifts, particularly in its digital gaming segment.

Hasbro, a well-known toy and board game company, has exceeded Wall Street's expectations for the second quarter, primarily due to its expanding digital gaming division. The company reported a net income of $138.5 million, a significant recovery from a net loss of $234.9 million in the previous year's second quarter. This turnaround is largely attributed to Hasbro's focus on and successful execution within its digital gaming sector, showcasing the company's adaptability and strategic planning.

In detail, Hasbro's earnings per share stood at 99 cents, contrasting sharply with a loss of $1.69 per share in the same period last year. Despite a decline in overall revenue by 18%, the Wizards of the Coast and digital gaming segments saw a revenue increase of 20%. This growth has been crucial in offsetting the declines in consumer product revenue and the substantial drop in entertainment segment revenue, which fell by 90% due to the divestiture of the production studio eOne. The company's pivot towards digital gaming and the successful launch of new initiatives under its Wizards of the Coast brand have been pivotal in driving Hasbro's recent success.

The market has responded positively to Hasbro's strategic direction and its ability to overcome industry challenges, with shares rising more than 4% in early trading following the announcement. This investor confidence is reflected in the stock's performance, with NASDAQ:HAS experiencing a modest increase of $0.53, or approximately 0.86%, trading between $61.25 and $63.15 on the day of the report. Currently, Hasbro's market capitalization is around $8.64 billion, with a trading volume of 221,068 shares, indicating a stable interest in the company's stock amidst its strategic transformations and financial recovery.

Roth Capital Adjusts Hasbro's Rating Amid Economic Changes

  • Roth Capital downgrades Hasbro to underperform, maintaining a hold position amidst a cautious outlook from analysts.
  • Recent economic data showing a cooling of inflation in April could provide a conducive environment for consumer discretionary sector growth, potentially benefiting companies like Hasbro.
  • Hasbro's new strategy, Blue Print 2.0, shows promising results, indicating efforts to revitalize business operations and product offerings are gaining traction.

Roth Capital's recent adjustment of Hasbro's (NASDAQ:HAS) rating to underperform while maintaining a hold position comes at a time when the stock was priced at $61.98. This decision, as detailed by Benzinga, reflects a broader analysis based on insights from 13 analyst ratings, suggesting a cautious outlook on Hasbro's future performance. Hasbro, a key player in the consumer discretionary sector, is known for its diverse range of entertainment and gaming products. The company competes in a dynamic market, facing off against both traditional toy manufacturers and digital entertainment providers.

The context of Roth Capital's rating adjustment is further illuminated by recent economic data indicating a cooling of inflation in April. According to the Labor Department's Bureau of Labor Statistics, the consumer price index (CPI) for April rose by a modest 0.3% month-over-month, below the anticipated 0.4%. This slowdown in inflation, particularly with a year-over-year CPI increase of 3.4%, aligns with estimates and suggests a potential easing of inflation pressures. For companies like Hasbro, which operates within the consumer discretionary sector, such economic conditions could provide a conducive environment for growth, as consumers may have more disposable income for discretionary spending.

The detailed analysis by Zacks Investment Research highlights that discretionary stocks, including Hasbro, could benefit from slowing inflation. The report points out that higher shelter and energy costs were significant contributors to the inflation figures for April, yet the core CPI readings—considered a more stable measure by excluding volatile food and energy costs—matched forecasts. This stabilization in core inflation rates, especially with the core year-over-year CPI reading being the lowest since April 2021, indicates a potential easing of inflation pressures that could favor discretionary spending.

Hasbro's performance and strategic positioning within the Consumer Discretionary sector are further analyzed by comparing it to other companies within the sector, such as PlayAGS, Inc. (AGS), and American Public Education, Inc. (APEI). As part of a sector ranked #10 in the Zacks Sector Rank, Hasbro is among 286 companies in a group assessed for their earnings outlooks. This ranking system, focusing on earnings estimates and revisions, aims to identify stocks with improving earnings prospects. Such analysis is crucial for investors looking to understand Hasbro's standing and potential for outperformance in the market.

Moreover, Hasbro's new strategy, Blue Print 2.0, as reported by Seeking Alpha, is beginning to show promising results, suggesting that the company's efforts to revitalize its business operations and product offerings are gaining traction. This development is significant, considering Hasbro's recent performance and stock price movements, which saw an increase of 3.243% to $62.08. With a market capitalization of approximately $8.64 billion and a trading volume of 1,891,574 shares, Hasbro's financial metrics and strategic initiatives are critical for investors monitoring the company's progress in a competitive and evolving market landscape.

Hasbro’s Outlook Following Q4 Beat

Hasbro, Inc. (NASDAQ:HAS) reported its Q4 and full 2021-year results, with quarterly EPS and revenues of $1.21 and $2.01 billion coming in better than the Street estimates of $0.86 and $1.87 billion, respectively.

Annual revenue of $6.42 billion increased 17% year-over-year and adjusted EPS of $5.23 came in 8% above the consensus estimate. According to the analysts at Berenberg Bank, the upside was largely driven by entertainment, up 27% for 2021, and continued momentum of the Wizards of the Coast segment, up 42% for 2021.

The analysts mentioned two key premises for their bullish thesis on the company:

(1) In the short term, demand for consumer products and Wizards of the Coast & Digital Gaming products is expected to remain resilient,

(2) In the long term, post-pandemic, the pent-up supply of entertainment content should translate to continued, above-average growth and compare favorably to peers.

The analysts believe that the company will maintain consumer product margins as the pricing actions are scheduled to take effect in Q2/22. Furthermore, they believe the company will maintain operating margins at the company level (around 16%), given that the Wizards of the Coast segment and entertainment (around 38% of revenue) are largely immune to supply chain disruptions.