Market Overview

Hasbro Reports First Quarter 2018 Financial Results

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  • First quarter 2018 revenues decreased to $716.3 million due to the
    liquidation of Toys"R"Us and retail inventory overhang, primarily in
    Europe;
  • Reported net loss of $112.5 million or $0.90 per diluted share,
    includes after-tax expenses of $61.4 million associated with
    Toys"R"Us; $15.7 million of severance costs associated with an
    acceleration of the Company's ongoing commercial organization
    transformation; and a net charge of $47.8 million related to U.S. tax
    reform (the "Non-GAAP Adjustments");
  • Adjusted net earnings of $12.4 million or $0.10 per diluted share;
  • Ended the quarter with $1.6 billion in cash and returned $109.6
    million to shareholders; $70.8 million in dividends and $38.8 million
    in share repurchases.

Hasbro,
Inc.
(NASDAQ:HAS) today reported financial results for the
first quarter 2018. Net revenues for the first quarter 2018 decreased
16% to $716.3 million versus $849.7 million in 2017. The decrease in
revenues is the result of the liquidation of Toys"R"Us in the U.S. and
U.K., along with uncertainty in its other operations, as well as retail
inventory overhang, primarily in Europe.

Net loss for the first quarter 2018 was $112.5 million, or $0.90 per
diluted share, compared to net earnings of $68.6 million, or $0.54 per
diluted share, in 2017. Excluding the Non-GAAP Adjustments noted above,
adjusted net earnings for the quarter were $12.4 million or $0.10 per
diluted share. The first quarter 2018 was a 13-week period versus the
first quarter 2017 which was a 14-week period.

"The Hasbro teams executed extremely well during a challenging first
quarter," said Brian Goldner, Hasbro's chairman and chief executive
officer. "Hasbro brands are resonating with consumers and consumer
takeaway is positive. However, as we discussed earlier in the year, our
first quarter was expected to be difficult. We are working to put the
near-term disruption from Toys"R"Us behind us. Our global retailers view
this as an opportunity in a key consumer category and are partnering
with Hasbro to develop growth plans for our brands. New Hasbro
initiatives shipping in this quarter and beyond won't be caught up in
the Toys"R"Us liquidation process. With the rapid shift to a converged
retail environment, we accelerated plans we originally had spread
throughout the year to transform our commercial organization on a more
immediate basis."

"Our underlying financial strength is sound, and despite the near-term
challenges associated with a major customer liquidation, Hasbro is
positioned to manage a challenging 2018 and drive growth in 2019 and
beyond," said Deborah Thomas, Hasbro's chief financial officer. "The
quarter's revenue and profits were negatively impacted by lower revenues
and higher expenses associated with events that do not reflect the
health of our underlying business. We remain on track to meet our goal
of generating $600 to $700 million in operating cash flow this year
while investing to build our brands, transform our organization and
return cash to shareholders."

First Quarter 2018 Major Segment Performance

                         
   

Net Revenues
($ Millions)

 

Operating Profit (Loss)
($ Millions)

 

Adjusted Operating
Profit (Loss) (NYSE:M)

  Q1 2018   Q1 2017   % Change   Q1 2018   Q1 2017   Q1 2018
U.S. and Canada   $364.3   $451.6   -19%   $(23.4)   $64.8   $28.9
International   $287.9   $345.3   -17%   $(56.1)   $0.5   $(44.9)
Entertainment and Licensing   $64.0   $52.7   +21%   $13.9   $11.3   $13.9
           

First quarter 2018 U.S. and Canada segment net revenues decreased 19% to
$364.3 million compared to $451.6 million in 2017. The segment reported
an operating loss of $23.4 million compared to an operating profit of
$64.8 million in 2017. The segment's first quarter performance reflected
the Toys"R"Us liquidation both in lower revenues and $52.3 million of
pre-tax expenses, primarily bad debt.

First quarter 2018 International segment net revenues were $287.9
million compared to $345.3 million in 2017. Revenues in the segment were
negatively impacted by efforts to clear excess inventory in Europe, as
well as the Toys"R"Us U.K. liquidation and uncertainty in its other
international operations. International segment revenues include a
favorable $19.5 million impact of foreign exchange. On a regional basis,
Europe net revenues decreased 28%, Latin America increased 2% and Asia
Pacific increased 3%. Emerging markets net revenues decreased 5% in the
quarter. The International segment reported an operating loss of $56.1
million compared to an operating profit of $0.5 million in 2017. The
decline in operating profit reflects lower revenues and includes $11.2
million of pre-tax expense associated with Toys"R"Us.

Entertainment and Licensing segment net revenues increased 21% to $64.0
million compared to $52.7 million in 2017. Operating profit increased
23% to $13.9 million, or 21.7% of net revenues, compared to $11.3
million, or 21.5% of net revenues, in 2017. Revenue growth was driven by
consumer products and digital gaming. During the quarter, the Company
adopted ASC 606 Revenue from Contracts with Customers which
favorably impacted the timing of revenue recognition in the quarter.

Additional pre-tax expense of $7.0 million associated with Toys"R"Us and
$17.3 million from accelerating the commercial organization
transformation are included in the Corporate and Eliminations segment.

First Quarter 2018 Brand Portfolio Performance

       
      Net Revenues ($ Millions)
    Q1 2018     Q1 2017     % Change
Franchise Brands     $361.7     $449.2     -19%
Partner Brands     $200.6     $213.0     -6%
Hasbro Gaming*     $105.2     $135.8     -22%
Emerging Brands     $48.8     $51.8     -6%

*Hasbro's total gaming category, including all gaming revenue, most
notably MAGIC: THE GATHERING and MONOPOLY, which are included in
Franchise Brands in the table above, totaled $203.5 million for the
first quarter 2018, down 20%, versus $253.3 million for the first
quarter 2017. Hasbro believes its gaming portfolio is a competitive
differentiator and views it in its entirety.

First quarter 2018 revenues were negatively impacted across all Brand
Portfolio categories by the liquidation of Toys"R"Us in the U.S. and
U.K., along with uncertainty in its other operations, as well as retail
inventory overhang, primarily in Europe.

First quarter 2018 Franchise Brand revenues decreased 19% to $361.7
million. Growth in MONOPOLY was offset by declines in all other
Franchise Brands in the quarter. Franchise Brand revenues grew in the
Entertainment and Licensing segment and declined in the U.S. and Canada
and International segments.

Partner Brand revenues declined 6% to $200.6 million. Revenue growth in
MARVEL and BEYBLADE was more than offset by declines in other Partner
Brands. Partner Brand revenues increased slightly in the U.S. and Canada
segment, but declined in the International segment.

Hasbro Gaming revenue decreased 22% to $105.2 million. Revenue gains in
DUNGEONS AND DRAGONS, JENGA and several new game launches were offset by
declines in other properties. Hasbro's total gaming category was down
20% to $203.5 million. Hasbro Gaming revenues declined in all three
major operating segments.

Emerging Brands revenue declined 6% to $48.8 million. Revenue increases
from STRETCH ARMSTRONG and LITTLEST PET SHOP products were offset by
declines in other Emerging Brands. Emerging Brands revenues grew in the
Entertainment and Licensing segment and declined in the U.S. and Canada
and International segments.

Dividend and Share Repurchase

The Company paid $70.8 million in cash dividends to shareholders during
the first quarter 2018. The next quarterly cash dividend payment of
$0.63 per common share is scheduled for May 15, 2018 to shareholders of
record at the close of business on May 1, 2018.

During the first quarter, Hasbro repurchased 427.1 thousand shares of
common stock at a total cost of $38.8 million and an average price of
$90.81 per share. At quarter-end, $139.2 million remained available in
the current share repurchase authorization.

Non-GAAP Adjustments

During the first quarter, the Company recorded lower revenues in part
due to the loss of revenues from Toys"R"Us in the U.S. and Europe, as a
result of the related liquidations as well as uncertainty in the other
Toys"R"Us operations. In association with this, the Company recorded
after-tax expenses of $61.4 million, primarily bad debt.

Hasbro also recorded $15.7 million of after tax expense associated with
accelerating its commercial organization transformation. Over the past
several years, the Company has invested in developing an omni-channel
retail presence, and in 2018 is bringing onboard new skill sets and
talent to lead in today's converged retail environment. These actions
were initially planned to occur over time, commencing later this year.
Given the current retail environment the Company chose to accelerate its
actions.

In 2017, the Company recognized a provisional net charge of $296.5
million from the U.S. Tax Cuts and Jobs Act. Additional changes and
guidance issued since year end resulted in a first quarter 2018 charge
of $47.8 million, or $0.38 per diluted share. This charge is related to
an increase in the Company's repatriation tax liability and a reversal
of tax benefits no longer permitted under the new guidance. The Company
expects its full-year underlying tax rate to be at the high end of its
previously projected range of 15% to 17%.

Conference Call Webcast

Hasbro will webcast its first quarter 2018 earnings conference call at
8:30 a.m. Eastern Time today. To listen to the live webcast and access
the accompanying presentation slides, please go to http://investor.hasbro.com.
The replay of the call will be available on Hasbro's web site
approximately 2 hours following completion of the call.

About Hasbro: Hasbro (NASDAQ:HAS) is a global play and
entertainment company committed to

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