Market Overview

Hasbro Reports Third Quarter 2019 Financial Results

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  • Third quarter 2019 revenues were $1.58 billion compared to $1.57 billion a year ago; Absent a negative $20.5 million impact of foreign exchange, third quarter 2019 revenues grew 2%
  • Revenues increased 20% in the Entertainment, Licensing and Digital segment; Revenues decreased 2% in the U.S. and Canada segment; Revenues were flat in the International segment, but increased 4% absent a negative $19.9 million impact of foreign exchange
  • Partner Brands revenue increased 40%; Franchise Brands revenue decreased 8%; Hasbro Gaming revenues decreased 17%; Emerging Brands revenue was flat
  • On August 22, Hasbro entered into an agreement to acquire Entertainment One (eOne) for approximately £3.3 billion; On October 17, eOne shareholders approved the transaction; The transaction, which remains subject to receipt of additional regulatory approvals and customary closing conditions, is anticipated to close in the fourth quarter 2019
  • Including a $20.9 million after-tax loss related to hedging part of the British Pound purchase price of eOne, net earnings were $212.9 million or $1.67 per diluted share; Excluding this loss, adjusted net earnings were $233.8 million, or $1.84 per diluted share
  • Quarter ending cash of $1.1 billion and operating cash flow of $389.6 million

Hasbro, Inc. (NASDAQ:HAS), a global play and entertainment company, today reported financial results for the third quarter 2019. Net revenues for the third quarter 2019 were $1.58 billion versus $1.57 billion in 2018. Absent a negative $20.5 million impact of foreign exchange, third quarter 2019 revenues grew 2%.

During the third quarter 2019, Hasbro entered into a definitive agreement to acquire Entertainment One Ltd. (eOne) in an all-cash transaction valued at approximately £3.3 billion. As a result of hedging part of the British Pound purchase price of eOne, Hasbro recognized an after-tax foreign exchange loss of $20.9 million after-tax charge, or $0.16 per diluted share. Third quarter 2018 net earnings include a favorable $17.3 million, or $0.14 per diluted share, tax benefit from U.S. tax reform. Including these items in both periods, net earnings for the third quarter 2019 decreased to $212.9 million, or $1.67 per diluted share, versus $263.9 million, or $2.06 per diluted share, for the third quarter of 2018. Excluding the charges, third quarter 2019 adjusted net earnings decreased to $233.8 million, or $1.84 per diluted share compared to third quarter 2018 adjusted net earnings of $246.5 million, or $1.93 per diluted share.

"Hasbro remains on track to deliver profitable revenue growth in 2019, behind innovation in gaming, toys and around Hasbro's Brand Blueprint. However, as we've communicated, the threat and enactment of tariffs reduced revenues in the third quarter and increased expenses to deliver product to retail," said Brian Goldner, Hasbro's chairman and chief executive officer. "The team drove continued growth in the Wizards of the Coast gaming brands, MAGIC: THE GATHERING and DUNGEONS & DRAGONS, and delivered significant new holiday initiatives. To start the fourth quarter, we are seeing a strong consumer response to the global launch of Hasbro's line for Disney's Frozen 2 and Star Wars: The Rise of Skywalker as well as the U.S. launch of the new NERF Ultra."

"In addition, we are pleased with the progress toward completing our acquisition of eOne, including last week's overwhelming approval by eOne shareholders. We expect to close the transaction during the fourth quarter," continued Goldner. "The strategic opportunity to bring onboard the brands, capabilities and talent from eOne is compelling to our long-term prospects as a leading global play and entertainment company and we look forward to sharing more about our plans after the close."

"Hasbro's global teams are executing within a dynamic trade environment that is impacting the timing of revenues, driving incremental expenses and putting upward pressure on our underlying tax rate," said Deborah Thomas, Hasbro's chief financial officer. "In addition, third quarter operating profit was negatively impacted versus last year from lower Entertainment, Licensing and Digital segment margins, a higher revenue mix of lower margin Partner Brands and incremental shipping and warehousing costs which partially offset our cost savings. We anticipate disruption throughout the remainder of 2019 as retailers work to manage costs and inventory and we are working to mitigate the impact on consumers this holiday season. Our teams are delivering an innovative slate across demographics and categories, including in digital gaming, that we are supporting with robust marketing programs and investment. Hasbro's financial position is strong and we ended the quarter with $1.1 billion in cash on our balance sheet."

Third Quarter 2019 Major Segment Performance

 

Net Revenues ($ Millions)

Operating Profit ($ Millions)

Q3 2019

Q3 2018

% Change

Q3 2019

Q3 2018

% Change

U.S. and Canada1

$898.3

$912.2

-2%

$193.7

$223.1

-13%

International

$561.1

$560.7

—%

$67.2

$66.3

1%

Entertainment, Licensing and Digital1

$115.8

$96.8

20%

$24.6

$37.1

-34%

1The Entertainment and Licensing segment is now the Entertainment, Licensing and Digital segment. For the quarter ended September 30, 2018, Wizards of the Coast digital gaming revenues of $12.0 million, and operating profit of $3.5 million, were reclassified from the U.S. and Canada Segment to the Entertainment, Licensing and Digital segment.

Third quarter 2019 U.S. and Canada segment net revenues decreased 2% to $898.3 million compared to $912.2 million in 2018. Partner Brands and Emerging Brands revenue increased while Franchise Brands and Hasbro Gaming declined. The enacted and proposed tariffs negatively impacted revenues in the quarter. The segment reported operating profit of $193.7 million versus $223.1 million in 2018. Lower revenues and a higher percentage of lower operating margin Partner Brand sales, including higher royalty expense, contributed to the decline. In addition, the segment recorded higher shipping and warehousing expenses as a result of the disruption and shift of retailer order patterns from tariffs.

International segment net revenues for the third quarter 2019 of $561.1 million were essentially flat with $560.7 million in 2018. Excluding a negative $19.9 million impact of foreign exchange, International segment revenues increased 4%.

Q3 2019 International Segment Revenue by Region

% Change as Reported

% Change Absent FX

Europe

-4%

—%

Latin America

+4%

+9%

Asia Pacific

+7%

+10%

Total International

—%

+4%

Within the International segment, Partner Brands and Emerging Brands revenue grew while Franchise Brands and Hasbro Gaming declined. The International segment reported an operating profit of $67.2 million compared to $66.3 million in 2018. The improvement in gross margin and favorable cost management was partially offset by higher royalty expense and intangible amortization in the segment.

Entertainment, Licensing and Digital segment net revenues increased 20% to $115.8 million compared to $96.8 million in 2018. Revenue growth was driven by Magic: The Gathering Arena and Transformers: Bumblebee film revenues, partially offset by lower digital streaming revenues for Hasbro television programming. Operating profit decreased to $24.6 million, or 21.2% of net revenues, versus $37.1 million, or 38.3% of net revenues in 2018. The decline in operating profit was the result of several factors, including higher operating profit margin in the third quarter of 2018 due to the multi-year digital streaming agreement for Hasbro television programming. In addition, program production amortization increased in the third quarter of 2019 and the Company continued investing in digital gaming initiatives, including Magic: The Gathering Arena and future digital games. Given the timing of Bumblebee revenues, the Company now estimates full-year 2019 program production amortization to be greater than historical levels, but remaining under 2.0% of total net revenues.

Third Quarter 2019 Brand Portfolio Performance

 

Net Revenues ($ Millions)

Q3 2019

Q3 2018

% Change

Franchise Brands

$779.7

$847.7

-8%

Partner Brands

$427.0

$305.8

40%

Hasbro Gaming2

$232.3

$280.8

-17%

Emerging Brands

$136.2

$135.3

1%

2Hasbro'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 $449.4 million for the third quarter 2019, up slightly versus $447.8 million for the third quarter 2018. Hasbro believes its gaming portfolio is a competitive differentiator and views it in its entirety.

Franchise Brands revenue decreased 8% to $779.7 million. MAGIC: THE GATHERING, MONOPOLY and TRANSFORMERS revenues increased in the quarter, but were more than offset by declines in NERF, MY LITTLE PONY, BABY ALIVE and PLAY-DOH. Franchise Brands revenue declined in the U.S. and Canada and International segments, but grew in the Entertainment, Licensing and Digital segment where Magic: The Gathering Arena and Transformers: Bumblebee revenue contributed.

Partner Brands revenue increased 40% to $427.0 million. Revenues grew behind Hasbro product for the October 4th Frozen 2 and Star Wars merchandising events ahead of the movie premieres, as well as increases in revenue for Hasbro's products for the Avengers and Spider-Man franchises from Marvel and Disney's Descendants 3. Partner Brand revenues increased in the U.S. and Canada and International segments. Given the current forecasted mix of Partner Brand revenues, the Company currently estimates full-year 2019 royalty expense to be approximately 8.5% of revenues.

Hasbro Gaming revenue decreased 17% to $232.3 million. Revenue gains from DUNGEONS & DRAGONS and select other gaming titles, including new titles for the holiday, were more than offset by declines in PIE FACE and SPEAK OUT among other games. Hasbro Gaming revenues decreased in all three operating segments. Hasbro's total gaming category was up slightly to $449.4 million.

Emerging Brands revenue increased 1% to $136.2 million driven by shipments of POWER RANGERS and PLAYSKOOL, including MR. POTATO HEAD, offset by declines in Quick Strike collectible offerings. Emerging Brands revenue grew in the U.S. and Canada and International segments, but declined in the Entertainment, Licensing and Digital segment.

Dividend and Share Repurchase

The Company paid $85.9 million in cash dividends to shareholders during the third quarter 2019. The next quarterly cash dividend payment of $0.68 per common share is scheduled for November 15, 2019 to shareholders of record at the close of business on November 1, 2019.

During the third quarter, Hasbro repurchased 14,345 shares of common stock at a total cost of $1.5 million and an average price of $104.82 per share. Through the first nine months of 2019, the Company repurchased 689,641 shares of common stock at a total cost of $60.1 million and an average price of $87.18. At quarter-end, $367.8 million remained available in the current share repurchase authorization, however, in anticipation of the eOne acquisition, the Company plans to suspend its share repurchase program while it prioritizes achieving its gross Debt to EBITDA target of 2.00 to 2.50X.

Conference Call Webcast

Hasbro will webcast its third quarter 2019 earnings conference call at 8:00 a.m. Eastern Time today. To listen to the live webcast and access the accompanying presentation slides, please go to https://investor.hasbro.com. The replay of the call will be available on Hasbro's web site approximately 2 hours following completion of t

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