Hasbro Beats Revenue and Earnings Expectations

Star Wars, Disney Princess, and Disney Frozen franchises propel quarterly growth

Source: Hasbro
Source: Hasbro

Toy and board game company Hasbro Inc. (NASDAQ: HAS) announced its Q2 FY16 financial results on July 18th, 2016. Headquartered in Pawtucket, Rhode Island, Hasbro is the second-largest toy maker in the world after Mattel Inc. (NASDAQ: MAT) in terms of revenue and market share. Together with its subsidiaries, Hasbro provides children and family leisure time products and services worldwide. It operates through the U.S. and Canada, International, and Entertainment and Licensing segments. The company’s product offerings include various toys comprising boy’s action figures, arts and crafts, creative play products, girl’s toys, electronic toys and related electronic interactive products. The company’s franchise brands include LITTLEST PET SHOP, MAGIC: THE GATHERING, MONOPOLY, MY LITTLE PONY, NERF, PLAY-DOH, and TRANSFORMERS. In addition, the Company’s Hasbro Studios produces television programming primarily based on its brands, which it distributes to broadcasters and cable networks, as well as on various digital platforms like Netflix and iTunes. Read more about Hasbro’s financial results below.

Q2 FY16 financial highlights

Source: Hasbro
Source: Hasbro

During Q2 FY16, Hasbro’s revenues grew 10% to $878.9 million versus $797.7 million in Q2 FY15. Excluding a negative $17.7 million impact from foreign exchange, Q2 FY16 revenues increased 12%. Hasbro generated 45.6% of its total revenue in international markets. The Company’s revenue, operating profit, and earnings showed robust growth mainly driven by three partner brands of The Walt Disney Company (NYSE: DIS) – Star Wars, Disney Princess, and Disney Frozen, and its franchise brands, Nerf and Play-Doh.

Source: Hasbro
Source: Hasbro

During Q2 FY16, the Boys category revenues rose 4% to $355.1 million, driven by gains in the NERF and STAR WARS brands as well as the addition of YOKAI WATCH.

In the Games category, revenues grew 8% to $227.7 million, with contributions from PIE FACE, DUEL MASTERS, YAHTZEE, SIMON and BOP-IT.

In the Girls category, revenues jumped 35% to $172.3 million, driven by the DISNEY PRINCESS, and DISNEY’S FROZEN fashion and small dolls, and BABY ALIVE.

Preschool category revenues increased 5% to $123.9 million due to growth in the PLAY-DOH brand.

During the reporting quarter, Hasbro’s operating and profit margins increased because operating income and earnings increased faster than revenue. Operating profit grew 12% to almost $85 million, while operating margins expanded to 9.7 % from 9.5% in the year-ago period.

Source: Hasbro
Source: Hasbro

Lastly, Hasbro’s net earnings for Q2 FY16 jumped 25% to $52.1 million, or $0.41 per diluted share, compared to $41.8 million, or $0.33 per diluted share, in Q2 FY15.

Segmental highlights

During Q2 FY16, Hasbro’s U.S. and Canada segment net revenues increased 11% to $425.9 million compared to $385.2 million in the year-ago period, driven by growth in the Boys, Girls, and Games categories, partially offset by a decline in the Preschool category. The U.S. and Canada segment reported operating profit growth of 23% to $58.0 million, or 13.6% of net revenues, compared to $47.1 million, or 12.2% of net revenues, in the year-ago period.

Source: Hasbro
Source: Hasbro

Hasbro’s Q2 FY16 International segment revenues rose 11% to $401.1 million compared to $362.8 million in the same period last year, on account of growth in the Boys, Girls, and Preschool categories, offset by a decline in the Games category. On a regional basis, Europe reported a growth of 23%, Latin America declined 1%, and Asia Pacific was down 4%, during the quarter under review. Emerging markets revenues increased 5% in the quarter. Hasbro suffered a foreign exchange (FX) impact of $17 million in the International segment, excluding which revenues grew 15%. Region-wise, revenues increased 24% in Europe ($2.1 million negative FX impact), 11% in Latin America ($12.2 million negative FX impact) and was flat in Asia Pacific ($2.7 million negative FX impact). Emerging markets increased approximately 13% in the absence of FX impact. International segment operating profit grew 17% to $29.7 million, or 7.4% of net revenues, compared to $25.4 million, or 7.0% of net revenues, in the comparable quarter last year.

Hasbro’s Q2 FY16 Entertainment and Licensing segment net revenues grew 9% to $51.9 million compared to $47.6 million in the year-ago period, driven by growth in Consumer Products and Digital Gaming. The Entertainment and Licensing segment’s operating profit jumped 86% to $13.8 million, or 26.6% of net revenues, compared to $7.4 million, or 15.6% of net revenues, in the year-ago period.

Other highlights

Hasbro’s cash position at the end of Q2 FY16 was $924 million, an increase of 7.7% versus the year-ago period. Inventory jumped to $572 million from $404 million in the year-ago period, an increase of 42%, or 48% after negative FX impact. Hasbro attributed the inventory building to expanding the global footprint for its Disney Princess and Frozen brands.

Stock repurchases

During Q2 FY16, the Company paid $63.9 million in cash dividends to shareholders and repurchased 270,611 shares of common stock at a total cost of $21.9 million for an average price of $81.00 per share. For H1 FY16, the Company repurchased 745,611 shares of common stock at a total cost of $57.8 million for an average price of $77.44 per share. At the end of Q2 FY16, Hasbro had $421.5 million available under its current share repurchase authorization.

Guidance for full year FY16

For the full year FY16, Hasbro plans to launch innovative offerings for new products such as FURBY CONNECT and SPEAK OUT, and support for upcoming major feature films, Lucas film’s Rogue One: A Star Wars Story and DreamWorks’ Trolls. Rogue One is slated to open in the U.S. on December 16th, 2016, and Hasbro plans to begin launching these toys at retail outlets in late September 2016, in a build-up to the film’s release.

Stock Performance

H6Hasbro’s stock stood at $81.23, gaining 0.30%, at the close on Friday, July 29th, 2016, having vacillated between an intraday high of $81.55 and a low of $80.56 during the session. The stock’s trading volume was at 953,920 for the day. The Company’s market cap was at $10.16 billion as of Friday’s close.

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