Hasbro, Inc. — Q1 2022 Form 10-Q
Business context and period. Global play and entertainment company spanning Consumer Products, Wizards of the Coast and Digital Gaming, and Entertainment. The quarter ended March 27, 2022; both comparative quarters were 13 weeks. Amounts below are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net revenue | $1,163.1 | $1,114.8 | +4% reported; +6% excluding unfavorable FX |
| Operating profit | $120.0 | $147.3 | -19% |
| Operating margin | 10.3% | 13.2% | -2.9 percentage points |
| Earnings before tax | $80.2 | $129.5 | -38% |
| Net earnings attributable to Hasbro | $61.2 | $116.2 | -47% |
| Diluted EPS | $0.44 | $0.84 | -48% |
| Operating cash flow | $134.7 | $377.6 | -$242.9 |
| Cash and cash equivalents, including restricted cash | $1,057.9 | $1,430.4 | -26% year over year |
Cost of sales rose to 28.6% of revenue from 26.0%, and program cost amortization to 11.9% from 8.7%. The effective tax rate was 21.6%, versus 9.3%; prior-year taxes benefited from discrete tax items and a legal settlement gain. Q1 2022 included a $2.3 net discrete tax benefit.
Segments and revenue mix
- Consumer Products: revenue $672.8, +3%; operating profit $8.6, down from $32.3. North America grew, while Europe and Asia Pacific declined.
- Wizards of the Coast and Digital Gaming: revenue $262.8, +9%; operating profit $106.4, down 3%. Growth included MAGIC: THE GATHERING, notably the Kamigawa: Neon Dynasty release.
- Entertainment: revenue $227.5, +4%; operating profit $12.2, down 28%. The prior-year comparison included $31.8 of eOne Music revenue; the business was sold in 2021.
- Partner Brands revenue grew 10%; Hasbro Gaming and Emerging Brands each grew 5%; Franchise Brands grew 4%; TV/Film/Entertainment was flat.
Liquidity, debt and capital allocation
At March 27, 2022, total current assets were $3,255.3 and current liabilities $2,043.0. Balance-sheet debt carrying amounts totaled approximately $4.0 billion, compared with approximately $4.8 billion a year earlier. Long-term debt principal was approximately $3.9 billion; the filing reports $155.8 of current long-term debt. Hasbro repaid $57.5 of term-loan principal during the quarter and was in compliance with its financial covenants.
The company had no commercial-paper or committed revolving-credit borrowings outstanding and reported approximately $1.5 billion available under its $1.5 billion revolving facility. Operating cash flow fell mainly because of lower earnings and higher working-capital needs, including inventory, freight and incentive payments. Inventory was $644.3, up 50% year over year; accounts receivable was $931.7, up 15%.
Cash dividends paid were $94.5. The quarterly dividend was increased from $0.68 to $0.70 per share for the May 2022 payment. No shares were repurchased in Q1; in April, Hasbro announced a plan to resume repurchases and target $75–$150 million during 2022, subject to conditions and discretion.
Outlook, commentary and risks
- No specific full-year revenue or earnings guidance is provided in the supplied filing text. Management expects the second half to remain more significant to annual sales and expects 2022 inventory shipments to peak from May through July, earlier than the historical August–December pattern.
- Supply-chain constraints, shipping delays and higher freight, product, labor and other costs persisted. Hasbro cited price increases implemented in 2021 and plans additional price increases in 2022; further pricing may be needed as costs evolve.
- Management said available cash, operating cash flow and borrowing facilities should meet working-capital needs for the remainder of 2022, including scheduled debt payments. This outlook is subject to operating, credit-market and other uncertainties.
- Hasbro paused shipments and new content distribution into Russia following the conflict in Ukraine. About $35.0 of receivables related to Russia were outstanding; over 90% were insured. The impact of prolonged disruption remained uncertain.
- Q1 operating profit was pressured by higher product and freight costs, increased program amortization and higher development and administrative costs. Q1 2021 included a $25.6 legal-settlement gain, with no comparable gain in 2022.
- Subsequent event: Hasbro announced an agreement to acquire D&D Beyond for $146.3 in cash, expected to close late Q2 or early Q3 2022, subject to customary conditions. The company said the purchase was not expected to materially affect 2022 results.
Important facts for investors to verify
- Whether supply constraints, elevated freight and input costs, and planned price increases affect margins and product availability as management expects.
- Whether the earlier inventory build converts to sales; monitor inventory, receivables and operating cash flow, particularly through the expected May–July shipment peak.
- How segment profitability develops, especially Consumer Products’ low Q1 operating margin and Wizards’ still-high but declining margin.
- Progress on debt reduction, upcoming maturities and required term-loan and production-financing repayments; verify continued covenant compliance and liquidity access.
- Completion and funding of the D&D Beyond acquisition, and whether its expected strategic and financial benefits materialize.