Hasbro (HAS) Rides Resilient Demand For Toys And Strength In Tabletop Games To Post Earnings Beat
2:53 pm Tuesday, July 19th, 2022
Hasbro (HAS) played its cards well in Q2 as the owner of the Dungeons & Dragons and Magic: The Gathering brands comfortably beat earnings expectations. Solid demand for the company’s tabletop games, along with price increases in its Consumer Products division (Nerf, My Little Pony, Play-Doh, etc.), pushed adjusted net earnings higher by 10% on an yr/yr basis. The earnings growth is a nice accomplishment given that freight and production costs were also up sharply for the quarter.
Although revenue grew by a scant 1.3% to $1.34 bln, slightly missing analysts’ estimates, the top-line result wasn’t quite as bad as it may seem.
Like many other companies, HAS is feeling the impact of a strengthening dollar, which created a significant foreign exchange headwind in Q2. Excluding the effect of foreign exchange, total revenue was up 4%, with the Consumer Products segment posting solid growth of 9%.
HAS also lapped a very challenging quarter in its Wizards of the Coast and Digital Gaming segment. In the year-earlier period, the company launched Dark Alliance and Magic: The Gathering Arena mobile. Consequently, digital and licensed gaming revenue declined by 36% yr/yr.
In the key tabletop gaming category, revenue was up by 15%, reflecting strength in the Magic: The Gathering franchise and validating HAS’s strategy to invest in the Wizards of the Coast and Digital Gaming segment. Relatedly, the company recently completed its $146.3 mln acquisition of D&D Beyond, complementing its D&D franchise and adding a growth catalyst to its role-playing game business.
One notable weak spot was the Entertainment segment as revenue fell by 18% to $185.2 mln. Film & TV revenue was down due to the delivery of fewer scripted TV half-hours, but the company is expecting a rebound in 2H22. For Q3, HAS expects to deliver 32 half-hours of scripted TV vs. 28 in the year-earlier period, including the first delivery of episodes for The Rookie: Feds, and episodes of The Rookie Season 5.
On a consolidated basis, the company maintained its FY22 revenue growth outlook, forecasting low-single digit growth in constant currency. However, while HAS still expects to achieve adjusted operating profit margin of 16%, it now believes that operating cash flow will come in at the low end of its prior guidance range of $700-$800 mln.
Overall, though, it was a good quarter for HAS, illustrating that consumer spending for toys and games remains healthy in this inflationary environment. That bodes well for fellow toy maker Mattel (MAT), which is slated to report earnings on Thursday afternoon after the market closes.
