Earnings Call: Hasbro Sees Growth in Games and Licensing Despite Challenges

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Earnings Call: Hasbro Sees Growth in Games and Licensing Despite Challenges

Global gaming and entertainment company Hasbro Inc. (HAS) reported mixed results in its third-quarter earnings call for 2024. CEO Chris Cocks highlighted the company's strategic progress, emphasizing an expanding operating profit margin for the third consecutive quarter, driven by strong growth in gaming and licensing. However, total revenue for the quarter reached $1.3 billion, marking a 15% decline from last year, largely attributed to the divestment of Entertainment One (eOne). The company is lowering its full-year revenue forecast for the Consumer Products segment but remains focused on improving operational efficiency and foresees significant profit growth in the future.

Key Points:

  • Hasbro reported Q3 revenue at $1.3 billion, a 15% decline year-over-year.
  • Adjusted operating profit rose to $329 million, reflecting a 25.7% margin.
  • Magic: The Gathering and Dungeons & Dragons showed strong performance.
  • Licensing revenue from Monopoly Go! reached approximately $10 million monthly.
  • Consumer Products revenue declined, but recovery is expected in Q4.
  • The company targets $750 million in cost savings by 2025, having achieved $240 million this year.
  • For 2024, Hasbro forecasts flat or a 1% decrease in Wizards revenue and a 12-14% decrease in Consumer Products revenue.

Company Outlook:

  • Hasbro anticipates significant profit growth through 2024 and beyond.
  • Adjusted EBITDA guidance remains between $975 million and $1.025 billion.
  • The company aims for a 4-6% adjusted operating margin in Q4.
  • End-of-period cash levels are expected to surpass those of 2023.

Declines:

  • The Entertainment segment experienced an 86% drop due to the eOne divestment.
  • Consumer Products revenue is expected to decrease by 12-14% in 2024.
  • The overall toy industry, excluding building sets, is projected to see a low single-digit decline.

Growth Areas:

  • "Good toy" sales are expected to stabilize or increase.
  • Partnerships in mobile gaming, particularly with companies like Scopely, show potential for revenue growth.
  • Upcoming Marvel Magic launches, including a Spider-Man collaboration, are expected to generate significant revenue.

Underperformances:

  • Year-to-date revenue fell by 18%, with adjusted net earnings at $498 million.
  • The Wizards segment saw a 5% decline, while Consumer Products fell by 10%.
  • A drop is anticipated in Magic: The Gathering in Q4 due to the absence of a holiday set.

Q&A Highlights:

  • The company discussed the impact of low inventory de-stocking volumes on Consumer Products guidance.
  • Upcoming Magic launches include a Final Fantasy set and multiple Marvel sets over the next four to five years.
  • Innovative user engagement strategies in mobile games like Scopely's Monopoly Go! are expected to boost revenue.

Hasbro remains optimistic about its strategic initiatives and growth potential in gaming and licensing segments. Despite current challenges, including a decline in the overall toy industry, the company focuses on cost-saving measures and exciting new collaborations to ensure future success.

InvestingPro Insights: To complement Hasbro's recent earnings report, InvestingPro data provides investors with additional context. Despite the reported 15% decline in Q3 revenue, InvestingPro Tips indicate that net income is expected to rise this year, aligning with Hasbro's anticipation of significant profit growth beyond 2024. This optimistic outlook is further supported by analysts' predictions of profitability this year despite the company not being profitable in the last twelve months.

The company's focus on operational efficiency and cost savings is reflected in the improvement of its adjusted operating profit margin. InvestingPro data shows Hasbro's operating income margin over the last twelve months at 13.28%, with adjusted operating income at $603.6 million. This data point highlights the company's progress in expanding its operating profit margin sequentially over three quarters, as mentioned in the earnings call.

Hasbro's strong performance in gaming and licensing, particularly with Magic: The Gathering and Monopoly Go!, is noteworthy. The InvestingPro Tip, highlighting Hasbro's history of maintaining dividend payments for 44 consecutive years, demonstrates the company's financial stability even during challenging times. Currently, the 4.24% dividend yield could be attractive to income-focused investors.

It should be noted that Hasbro faces challenges in its Consumer Products segment, but the company's adjusted P/E ratio at 36.3 suggests that investors are pricing in future growth potential. This valuation metric, along with an InvestingPro Tip indicating strong returns over the past three months (confirmed by a 12.44% total return in the last quarter), reflects market optimism about Hasbro's strategic initiatives and potential recovery.

For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for Hasbro, providing a deeper examination of the company's financial health and market positioning.