Tuesday, 18 October 2022 16:00

Hasbro Reports Third Quarter Financial Results

Written by BUSINESS WIRE
Hasbro Reports Third Quarter Financial Results HASBRO

Hasbro, Inc. (NASDAQ: HAS), a global branded entertainment leader, today reported financial results for the third quarter 2022.

Revenues of $1.68 billion were down 15% year-over-year, a decline of 12% on a constant currency basis. Operating profit of $194.3 million declined 47%, or 31% on an adjusted basis. These results were primarily impacted by the acceleration of Consumer Products shipments by our retailers into the second quarter due to anticipated supply chain challenges, as well as MAGIC: THE GATHERING set releases and entertainment content scheduled for release in the fourth quarter versus the third quarter last year.

"As expected, the third quarter is our most difficult comparison and was further impacted by increasing price sensitivity for the average consumer," said Chris Cocks, Hasbro chief executive officer. "To achieve our full-year outlook, we are projecting Hasbro’s fourth quarter revenue to be approximately flat versus last year on a constant currency basis with particular strength from our Wizards and Digital Gaming segment. Growth will be driven by what we expect to be one of the biggest fourth quarters for MAGIC: THE GATHERING as we kick off the brand’s 30th anniversary and celebrate Hasbro’s first ever $1 billion brand."

Cocks continued: “Hasbro is well positioned for growth in 2023 and beyond as we execute our new strategic plan focused on bigger brands, stronger profits and consumer-focused leadership. We are committed to an industry-leading dividend and a 3-year program to drive $250-300 million per year in cost savings, including $50 million in annualized run-rate for year-end 2022. We have a strong line up of new products in Q4 and into next year, 7 new blockbuster films and 20+ streaming and TV shows that we are merchandising against starting with November’s Marvel Studios' Black Panther: Wakanda Forever and our Transformers: EarthSpark.

"In early October, we shared the results of our nine-month strategic review including our plan to drive accelerated growth and profit over the next five years," said Deborah Thomas, Hasbro chief financial officer. "Our work to deliver disciplined, high-return growth to drive long-term shareholder value is well under way. Our balance sheet remains strong and well positioned to meet our objectives. We are focused on selling through inventory and managing our business to deliver to our 16% adjusted operating profit margin target and meet our long-term goals."

Third Quarter 2022 Financial Results

$ Millions, except earnings per share

   

Q3 2022

 

 

Q3 2021

 

 

% Change

Net Revenues1

   

$

1,675.9

   

$

1,970.0

   

-15

%

 

   

 

   

 

   

 

Operating Profit

   

$

194.3

   

$

367.9

   

-47

%

Adjusted Operating Profit2

   

$

270.5

   

$

389.6

   

-31

%

 

   

 

   

 

   

 

Net Earnings

   

$

129.2

   

$

253.2

   

-49

%

Net Earnings per Diluted Share

   

$

0.93

   

$

1.83

   

-49

%

 

   

 

   

 

   

 

Adjusted Net Earnings2

   

$

196.2

   

$

271.2

   

-28

%

Adjusted Net Earnings per Diluted Share2

   

$

1.42

   

$

1.96

   

-28

%

 

   

 

   

 

   

 

EBITDA2

   

$

267.1

   

$

443.0

   

-40

%

Adjusted EBITDA2

   

$

345.5

   

$

462.1

   

-25

%

1Foreign exchange had a negative $53.7 million impact, or 3%, on third quarter 2022 revenue
2See the financial tables accompanying this press release for a reconciliation of GAAP and non-GAAP financial measures.

Third Quarter 2022 Major Segment Performance

Q3 2022 Major Segments ($ Millions)

   

Net Revenues

   

Operating Profit

(Loss)

   

Adjusted

Operating Profit1

   

Q3 2022

   

Q3 2021

   

%

Change

   

Q3 2022

   

Q3 2021

   

Q3 2022

   

Q3 2021

Consumer Products

   

$

1,160.8

   

$

1,282.7

   

-10

%

   

$

136.8

 

   

$

210.4

   

$

145.8

   

$

210.4

Wizards of the Coast and Digital Gaming

   

$

303.5

   

$

360.2

   

-16

%

   

$

102.2

 

   

$

159.4

   

$

102.2

   

$

159.4

Entertainment

   

$

211.6

   

$

327.1

   

-35

%

   

$

(28.9

)

   

$

22.4

   

$

5.9

   

$

42.1

Q3 2022 Major Segments ($ Millions)

   

EBITDA

   

Adjusted EBITDA1

   

Q3 2022

   

Q3 2021

   

Q3 2022

   

Q3 2021

Consumer Products

   

$

217.8

 

   

$

253.5

   

$

226.5

   

$

262.5

Wizards of the Coast and Digital Gaming

   

$

105.7

 

   

$

170.9

   

$

111.0

   

$

174.2

Entertainment

   

$

(4.8

)

   

$

44.1

   

$

28.2

   

$

49.6

1Reconciliations are included in the attached schedules under the heading "Reconciliation of Adjusted Operating Profit" and “Reconciliation of EBITDA and Adjusted EBITDA.”

Consumer Products segment revenues decreased 10%.

  • Revenue decreased 6% excluding a negative $40.0 million impact of foreign exchange, $31.1 million of which was in Europe.
  • The segment's 31% decline in adjusted operating profit is the result of lower revenue as well as higher allowances, promotional activity and costs associated with higher inventory levels.
  • For the full year, revenue is expected to decline low-single digits from full year 2021 in constant currency, with adjusted operating profit margin down slightly from 2021's 10.1%.

Wizards of the Coast and Digital Gaming segment revenues decreased 16%.

  • Revenues decreased 13% excluding a negative $8.7 million impact of foreign exchange.
  • Operating profit of $102.2 million was down 36% and reflects the lower revenue, higher product costs, incremental royalty expense with new Universes Beyond card set releases, amortization from the acquisition of D&D Beyond and continued higher investment in development. These declines were partially offset by launch-related product development, advertising and depreciation costs associated with Dark Alliance that released in early third quarter 2021.
  • For the full-year, on a constant currency basis, we expect high-single digit revenue growth behind a strong MAGIC: THE GATHERING tabletop release schedule for the fourth quarter. Operating profit margin is expected to be at or above 40%, down from 42.5% for full-year 2021, as we continue investing for long term growth in these valuable brands.

Entertainment segment revenue decreased 35%.

  • Revenues declined 34% excluding a negative $5.0 million impact of foreign exchange.
  • Film & TV revenue declined 26% reflecting the expected comparison to direct to streaming releases of the films Come from Away and Finch released in the prior period.
  • Family Brands revenue declined 78% primarily due to the delivery of My Little Pony: A New Generation film in third quarter 2021 which did not have a comparable film release this year.
  • Adjusted operating profit decreased 86% on lower revenues, in particular the decline in film revenue.
  • For the full-year, on a constant currency basis and excluding the music business which was sold in 2021, we expect revenue to decline mid-single digits as we divest of certain non-core businesses, and some deliveries of scripted TV and film releases move to the first quarter of 2023. Adjusted operating profit is expected to be approximately in line with or slightly up from last year's adjusted operating profit margin absent the music business of 7.8%.

Third Quarter 2022 Brand Portfolio Performance

Brand Performance ($ Millions)

   

Net Revenues

   

Q3 2022

   

Q3 2021

   

% Change

Franchise Brands1

   

$

814.1

   

$

925.1

   

-12

%

Partner Brands

   

$

349.9

   

$

366.7

   

-5

%

Hasbro Gaming2

   

$

211.3

   

$

281.9

   

-25

%

Emerging Brands

   

$

123.4

   

$

134.4

   

-8

%

TV/Film/Entertainment

   

$

177.2

   

$

261.9

   

-32

%

1Effective in the first quarter of 2022, the Company moved PEPPA PIG into Franchise Brands from Emerging Brands. For comparability, third quarter 2021 net revenues have been restated to reflect the elevation of PEPPA PIG from Emerging Brands into Franchise Brands resulting in a change of $43.1 million.
2Hasbro's total gaming category, including all gaming revenue, most notably MAGIC: THE GATHERING and MONOPOLY, totaled $508.6 million for the third quarter 2022, down 23% versus the third quarter 2021.

Blueprint 2.0 & Operational Excellence
At the Company's investor day on October 4, 2022, Hasbro unveiled its Blueprint 2.0. This new consumer-centric approach focuses on fewer, bigger brands, expanded licensing, branded entertainment, and driving high-margin growth in games, digital and direct.

In support of the Blueprint 2.0, Hasbro announced an Operational Excellence program to deliver $250-300 million in annualized run-rate cost savings by year-end 2025. The Company expects cash costs of $200 million to implement the program, including an expected $20 million in 2022. A $55.3 million charge was recorded in the third quarter associated with the program primarily from a loss on assets held for sale as well as severance and other employee charges.

Company Outlook
The Company's 2022 guidance includes:

  • Full-year 2022 revenue flat to slightly down in constant currency
  • 16% adjusted operating profit margin, excluding Operational Excellence charge and other non-GAAP items(1)

(1) The Company is not able to reconcile its forward-looking non-GAAP adjusted operating profit margin measures because the Company cannot predict with certainty the timing and amounts of discrete items such as charges associated with its cost-savings program, which could impact GAAP results.

Capital Priorities
During the third quarter, Hasbro paid $96.7 million in cash dividends to shareholders. The next dividend of $0.70 per common share was previously declared and will be payable on November 15, 2022 to shareholders of record at the close of business on November 1, 2022.

Given the progress made toward reducing debt, the Company repurchased 1.4 million shares of Hasbro common stock at a total price of $125.0 million year-to-date 2022. $242.6 million remains available in the Company's share repurchase program. The Company remains on track to achieve its target gross debt to adjusted EBITDA of 2.0 to 2.5X in the second half of 2023 or sooner, depending on business performance and other factors.