Hasbro, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter ended October 1, 2023. The quarter comprised 13 weeks, as did the comparable 2022 quarter. The nine-month 2023 period comprised 40 weeks versus 39 weeks in 2022. Unless noted, amounts are in millions of dollars.
Business context and results
Hasbro sells toys and games, develops digital and tabletop games, and produces entertainment. Its Blueprint 2.0 strategy prioritizes fewer, larger brands and operational efficiencies, while exiting certain non-core businesses. The company realigned its brand portfolios in 2023.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net revenue | $1,503.4 | $1,675.9 | $3,714.4 | $4,178.2 |
| Operating profit (loss) | ($169.5) | $194.3 | ($340.2) | $533.4 |
| Net earnings (loss) attributable to Hasbro | ($171.1) | $129.2 | ($428.2) | $332.4 |
| Diluted earnings (loss) per share | ($1.23) | $0.93 | ($3.09) | $2.39 |
Q3 revenue fell 10% (12% excluding a favorable $22.6 foreign-exchange impact); nine-month revenue fell 11%. The nine-month comparison includes one additional week in 2023. Q3 operating margin was negative 11.3%, versus positive 11.6% a year earlier; nine-month operating margin was negative 9.2%, versus positive 12.8%.
Segments and material changes
- Consumer Products: Q3 revenue declined 18% to $956.9 and operating profit fell 30% to $96.1. Nine-month revenue declined 17% to $2,132.5 and operating profit fell 56% to $61.5. Lower sales, closeout activity and obsolescence charges weighed on results; cost savings and lower royalties partly offset the pressure.
- Wizards of the Coast and Digital Gaming: Q3 revenue rose 40% to $423.6 and operating profit rose 99% to $203.4, driven notably by Baldur’s Gate 3, MONOPOLY GO! licensing and tabletop releases. Nine-month revenue rose 11% to $1,094.4, while operating profit declined 3% to $422.5 amid higher product, royalty, development and marketing costs.
- Entertainment: Q3 revenue fell 42% to $122.9; the segment recorded a $468.5 operating loss. Nine-month revenue fell 22% to $487.5; the segment recorded an $801.4 operating loss. Results reflect lower content deliveries, industry strikes, the planned eOne Film and TV sale write-down, and impairment charges.
- Brand portfolios: Q3 Franchise Brands revenue increased 8%, while Partner Brands fell 35%, Portfolio Brands fell 19%, and Non-Hasbro Branded Film & TV fell 47%. Nine-month Franchise Brands revenue was flat; the other three categories declined 31%, 19% and 25%, respectively. Expired Disney Princess and Frozen licenses and fewer comparable entertainment releases pressured Partner Brands.
Cash flow, balance sheet and capital
- Nine-month operating cash flow was $334.9, up from $262.2, reflecting lower net spending on entertainment content and production, among other factors. Investing cash outflow was $162.6, including $160.4 of property and equipment additions. Financing cash outflow was $418.0.
- Cash and cash equivalents were $185.5 at October 1, 2023, versus $551.6 a year earlier. Inventory was $617.7, down 27% year over year, reflecting inventory reduction efforts and improved supply-chain transit times.
- Long-term debt carrying value was $3,654.6, with a $60.0 current portion. The filing reports approximately $3.7 billion of debt principal. An additional $150.9 of production-financing borrowings attributable to the business for sale was classified within liabilities held for sale.
- Hasbro had no borrowings under its $1.25 billion revolving credit facility and reported approximately $1.25 billion available, subject to its terms. It was in compliance with its stated debt covenants at quarter-end.
- Nine-month dividends paid were $290.9. Hasbro declared a further $0.70-per-share dividend payable November 15, 2023. There were no share repurchases in the first nine months; $241.6 remained authorized.
Outlook, unusual items and risks
- Hasbro agreed to sell its non-core eOne Film and TV business to Lionsgate for approximately $500 million: $375 million in cash, subject to purchase-price adjustments, plus assumption of production-financing loans. The sale remained subject to customary closing conditions and was expected to close before year-end 2023. Hasbro intended to use net proceeds to repay floating-rate debt and for general corporate purposes. The filing does not provide a clear updated closing outcome or quantified full-year revenue or earnings guidance.
- The planned sale generated a $473.0 pre-tax, non-cash loss in Q3, including a $457.3 write-down allowance and currency-translation losses. Separately, Q2 Film and TV impairment charges totaled $296.2 pre-tax: $231.2 goodwill and $65.0 intangible assets. The business was classified as held for sale, not discontinued operations.
- Operational Excellence targets $250–$300 million of run-rate cost savings by the end of 2025; the company reported $154 million of cumulative gross savings realized in the first nine months of 2023. Approximately 1,000 positions, or about 15% of global full-time employees, were slated for elimination; actions were expected to be substantially complete by the end of 2024.
- Management said available cash, operating cash flow, commercial paper and credit facilities were expected to cover working-capital needs for the remainder of 2023. It identified seasonality and holiday demand, consumer spending and retailer inventory, inflation and costs, manufacturing concentration in China, currency movements, and access to financing as risks.
- Writers’ and actors’ strikes delayed or reduced entertainment production and deliveries, with potential knock-on effects for related merchandise. The WGA strike ended in September 2023; the SAG-AFTRA strike was ongoing at the filing date. Hasbro also cited lower discretionary spending, promotional activity and the risk of inventory obsolescence.
Investor verification priorities
- Confirm the Lionsgate transaction’s closing, final proceeds and purchase-price adjustments, and the actual use of proceeds to reduce debt.
- Assess whether the held-for-sale valuation and Film and TV impairment assumptions are supported by subsequent results and cash flows.
- Track consumer-product demand, closeout sales, inventory levels and margins as the holiday season progresses.
- Evaluate the sustainability and concentration of gaming growth, including the contribution of key releases and licensing arrangements.
- Monitor strike-related content delays, cost-savings delivery, debt covenant headroom and cash available for dividends and other obligations.