Hasbro, Inc. — Q1 2021 Form 10-Q
Reporting period: 13 weeks ended March 28, 2021; comparisons are with the 13 weeks ended March 29, 2020. Hasbro is a global play and entertainment company spanning consumer products, Wizards of the Coast and digital gaming, and entertainment. The company realigned its reporting segments in Q1; prior-year segment data was reclassified, without changing previously reported consolidated results.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net revenue | $1,114.8 million | $1,105.6 million |
| Operating profit (loss) | $147.3 million | ($23.3) million |
| Net earnings (loss) attributable to Hasbro | $116.2 million | ($69.7) million |
| Diluted earnings (loss) per share | $0.84 | ($0.51) |
| Operating cash flow | $377.6 million | $291.6 million |
- Revenue increased 1% as reported, including a favorable $18.4 million foreign-exchange impact; excluding currency translation, revenue declined 1%.
- Operating margin was approximately 13% of revenue, versus an operating loss margin of approximately 2% a year earlier. Q1 2021 included $24.9 million of eOne acquired-intangible amortization and $1.9 million of eOne-related retention expense.
- Net earnings included a $25.6 million gain from a legal settlement concerning historical eOne foreign-exchange hedging activities. The effective tax rate was 9.3%, including an $8.9 million net discrete tax benefit.
- Cost of sales rose to $289.9 million from $262.7 million, driven mainly by higher inventory and freight costs. Program cost amortization declined to $97.5 million from $132.2 million.
- Cash and cash equivalents, including restricted cash, were $1,430.4 million at quarter-end. Cash decreased $19.3 million during the quarter. Operating cash flow improved year over year; investing used $25.5 million and financing used $370.8 million, including repayment of $300 million of notes due May 2021.
- Balance-sheet debt was $4,823.0 million, comprising $148.9 million current and $4,674.1 million long-term debt; short-term borrowings were $8.8 million. The company reported $1.5 billion of unused revolving-credit capacity and compliance with its debt covenants. The quarterly dividend remained $0.68 per share; share repurchases were suspended while Hasbro prioritizes deleveraging.
Segments and changes versus prior year
- Consumer Products: Revenue rose 14% to $653.9 million; operating profit was $32.3 million versus a $9.7 million loss. Growth included Play-Doh, Nerf, Transformers, Star Wars and Disney Princess. Higher royalties, advertising and freight costs partly offset revenue growth.
- Wizards of the Coast & Digital Gaming: Revenue rose 15% to $242.2 million; operating profit increased 15% to $110.0 million. Magic: The Gathering releases and Dungeons & Dragons contributed to growth; higher development, advertising and administrative costs partly offset it.
- Entertainment: Revenue fell 32% to $218.7 million; operating profit was $17.0 million versus a $64.3 million loss. The 2020 comparison included substantial eOne acquisition and integration charges. Excluding those prior-year charges, management said Q1 2021 operating profit declined $17.2 million, reflecting lower content deliveries, partly offset by lower advertising expense.
- By portfolio, Franchise Brands revenue increased 24%, Emerging Brands 11%, and Partner Brands 3%; Hasbro Gaming declined 3%, and Entertainment portfolio revenue declined 34%. Total gaming-category revenue, including gaming reported in other portfolios, increased 7% to $365.3 million.
Outlook, risks and unusual items
- The filing provides no specific quantified full-year 2021 earnings or revenue guidance. Management said available cash, expected operating cash flow, production financing and committed credit facilities should be adequate for working-capital needs through the remainder of 2021. Q1 results are not necessarily indicative of full-year results.
- COVID-19 continued to affect product supply, freight and distribution, retail and entertainment production, and content release timing. Management cited ongoing uncertainty about the pandemic’s future operating impact. Consumer-products sales are historically concentrated in the second half, particularly the holiday period.
- On April 25, 2021, after quarter-end, Hasbro agreed to sell eOne’s music business for $385 million. The company expected a $125–$135 million pre-tax, non-cash impairment loss, including transaction expenses, to be recorded in Q2. Closing was expected late Q2 or early Q3, subject to approvals and customary conditions; proceeds were intended for deleveraging and general corporate purposes.
- Other risks highlighted include higher shipping and input costs, foreign-currency movements, reliance on third-party manufacturers and licensors, customer and retail inventory patterns, content production and release execution, and the recoverability of film, television, goodwill and intangible assets. The company reported no material change to the risk factors in its 2020 Form 10-K and no legal proceedings it believed material.
Investor facts to verify
- How much of the year-over-year earnings improvement reflects the absence of 2020 eOne acquisition charges and the 2021 legal settlement gain, versus underlying operating trends?
- Whether the eOne music sale closes on the expected timetable and the final impairment charge and net proceeds.
- Whether consumer-product growth and Wizards’ momentum continue, and whether entertainment deliveries recover from pandemic-related disruption.
- Whether freight and other cost pressures affect margins, and whether operating cash flow remains adequate as seasonal working-capital needs change.
- Progress on debt reduction, covenant compliance and the company’s timing for resuming share repurchases, if any.