Hasbro, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter ended September 26, 2021 (13 weeks), and nine months ended September 26, 2021 (39 weeks). Comparatives are the corresponding 2020 periods. Amounts are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context and performance
Hasbro operates across Consumer Products, Wizards of the Coast and Digital Gaming, and Entertainment. It realigned its reportable segments in 2021; comparative segment information was reclassified, with no change to previously reported consolidated results. The company completed the sale of eOne Music on June 29, 2021.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net revenue | $1,970.0 | $1,776.6 | $4,407.0 | $3,742.5 |
| Operating profit | $367.9 | $336.6 | $591.8 | $315.5 |
| Operating margin | 18.7% | 18.9% | 13.4% | 8.4% |
| Net earnings attributable to Hasbro | $253.2 | $220.9 | $346.5 | $117.3 |
| Diluted EPS | $1.83 | $1.61 | $2.51 | $0.85 |
| Operating cash flow | Not separately reported | Not separately reported | $685.6 | $494.3 |
Q3 revenue rose 11% (10% excluding favorable currency translation); nine-month revenue rose 18% (16% excluding currency). Q3 attributable earnings increased 15%, while nine-month earnings nearly tripled. The nine-month comparison reflects, among other items, the much higher 2020 eOne acquisition and related costs.
Revenue mix and material changes
- Q3 segments: Consumer Products revenue declined 3% to $1,282.7; Wizards of the Coast and Digital Gaming grew 32% to $360.2; Entertainment grew 76% to $327.1.
- Nine-month segments: Consumer Products grew 9% to $2,625.8; Wizards of the Coast and Digital Gaming grew 50% to $1,008.7; Entertainment grew 17% to $772.5.
- Q3 portfolio revenue increased in TV/Film/Entertainment (+58%), Hasbro Gaming (+18%), Emerging Brands (+15%) and Franchise Brands (+9%); Partner Brands declined 10%. Growth drivers included Magic: The Gathering releases, entertainment deliveries, and new Peppa Pig and PJ Masks product lines.
- Q3 operating profit benefited from revenue growth and product mix, but freight, product development and advertising costs increased. Consumer Products operating profit fell 7%; Wizards and Digital Gaming rose 13%; Entertainment returned to operating profit of $22.4 from a $28.3 loss.
Cash flow, balance sheet and liquidity
- Nine-month operating cash flow was $685.6, up from $494.3. Higher earnings and favorable payables changes helped; increased film and television production spending partly offset the improvement.
- Investing activities provided $277.5, including $379.2 net proceeds from the eOne Music sale; 2020 investing cash use included the $4.4 billion eOne acquisition. Financing activities used $1,223.5, primarily reflecting debt repayments and $280.7 of dividends paid.
- At September 26, cash and cash equivalents, including $94.9 of restricted cash, were $1,181.2. Current assets were $3,730.4 and current liabilities $2,450.4.
- Balance-sheet debt was $4,165.0, including current debt of $187.6 and long-term debt of $3,977.4. The company repaid $300.0 of 3.15% notes, $300.0 of 2.60% notes, and made $372.5 of term-loan repayments during the first nine months. Interest expense declined to $137.3 from $153.7.
- The company reported $1.5 billion available under its revolving credit facility, no commercial paper or revolver borrowings, and compliance with debt covenants. Management said cash, operating cash flow and available facilities were adequate for working-capital needs for the remainder of 2021.
- The quarterly dividend remained $0.68 per share. Share repurchases were suspended while the company prioritizes deleveraging.
Unusual items, outlook and risks
- The eOne Music sale generated $397.0 of net proceeds, including closing adjustments, subject to further working-capital adjustments expected in Q4. Hasbro recorded a $101.8 non-cash goodwill impairment and $9.5 of transaction costs. The business was not presented as discontinued operations.
- Nine-month results also included a $26.7 gain from a legal settlement. The nine-month effective tax rate was 29.0%, compared with 35.0%; UK tax-rate legislation increased the tax provision by $39.4. The filing also reports an $8.8 net discrete tax expense.
- COVID-related manufacturing, port, container and transport constraints caused product delays and higher freight costs. Management expected these disruptions to continue through the remainder of 2021 and possibly into 2022; air freight was used where needed. Hasbro cited retail availability, production delays and increased entertainment production costs as ongoing uncertainties.
- Hasbro noted the seasonal concentration of consumer-products sales in the second half of the year and the risks of holiday shipping schedules, product availability and changing retailer orders. The filing provides no specific numerical full-year revenue or earnings guidance.
- After quarter-end, Hasbro announced the October 12, 2021 passing of Chairman and CEO Brian Goldner. Richard S. Stoddart was appointed interim CEO and Tracy A. Leinbach Board Chair. Accelerated vesting of equity awards was expected to increase Q4 compensation expense; further succession-related costs may occur.
- The company said it was party to legal proceedings it did not believe material, and reported no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective.
Investor facts to verify
- Whether supply-chain constraints, freight costs and product availability affected holiday-quarter shipments, sales and margins as anticipated.
- Final working-capital adjustments and realized proceeds from the eOne Music sale, alongside the impact of the impairment and related costs.
- Debt reduction, covenant headroom and liquidity after scheduled repayments, dividends and seasonal working-capital needs.
- Whether Wizards and Digital Gaming growth and entertainment deliveries were sustained, and whether Consumer Products recovered from Q3 shipment declines.
- Q4 and subsequent costs tied to CEO succession and accelerated equity vesting, and the effect of UK tax changes on the effective tax rate.