Hasbro, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 26, 2022; each comprised 13 and 26 weeks, respectively. Dollar amounts are in millions unless stated otherwise.
Business context and performance
Hasbro operates Consumer Products, Wizards of the Coast and Digital Gaming, and Entertainment. The quarter’s growth was led by Consumer Products and tabletop gaming, while Entertainment revenue declined, partly reflecting the 2021 sale of eOne Music and the timing of television deliveries.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net revenue | $1,339.2 (+1%) | $1,322.2 | $2,502.3 (+3%) | $2,437.0 |
| Operating profit | $219.1; 16.4% margin | $76.6; 5.8% margin | $339.1; 13.6% margin | $223.9; 9.2% margin |
| Net earnings attributable to Hasbro | $142.0; $1.02 diluted EPS | $(22.9); $(0.17) diluted EPS | $203.2; $1.46 diluted EPS | $93.3; $0.68 diluted EPS |
| Operating cash flow | Not separately presented for the quarter | $147.8 | $577.1 |
Q2 revenue included a $32.7 unfavorable foreign-exchange impact; first-half revenue included a $50.1 unfavorable impact. Cost of sales rose to 30.7% of revenue in Q2 from 26.1%, and to 29.8% for the first half from 26.1%, reflecting higher product, freight and obsolescence costs. Q2 operating-profit improvement was substantially affected by the prior-year eOne Music impairment; it should not be read as wholly recurring growth.
- Q2 segment revenue: Consumer Products $734.2 (+7%); Wizards of the Coast and Digital Gaming $419.8 (+3%); Entertainment $185.2 (−18%). Segment operating profit was $(6.5), $225.6, and $14.3, respectively.
- First-half segment revenue: Consumer Products $1,407.0 (+5%); Wizards of the Coast and Digital Gaming $682.6 (+5%); Entertainment $412.7 (−7%). Segment operating profit was $2.1, $332.0, and $26.5, respectively.
- Cash and cash equivalents, including restricted cash, were $628.2, versus $1,228.2 a year earlier. Inventories were $867.5, up 74% year over year, as Hasbro accelerated purchases to address supply constraints.
- Balance-sheet debt included $3,739.0 long-term debt, $137.0 current long-term debt, and $98.0 short-term borrowings. Shareholders’ equity was $3,012.8. Hasbro reported $1.5 billion available under its revolving credit facility and no commercial-paper borrowings.
- Investing cash outflow was $212.6, including the $146.3 cash acquisition of D&D Beyond. Financing cash outflow was $319.9, including $124.0 of share repurchases and $191.9 of dividends paid.
Material changes and unusual items
- Q2 2021 included a $101.8 non-cash impairment related to eOne Music and $9.5 of related transaction expenses. eOne Music was sold in June 2021; its prior-year revenue also affects current-period comparisons.
- Hasbro acquired D&D Beyond on May 19, 2022 for $146.3 in cash, expecting the platform to expand direct-to-fan physical and digital Dungeons & Dragons offerings.
- First-half operating cash flow fell by $429.3 year over year, primarily due to working-capital needs, including inventory, incentive compensation, royalties and freight.
- Hasbro resumed share repurchases in April 2022, buying approximately 1.4 million shares for $124.0 at an average $87.48 per share; $242.6 remained under the authorization at quarter-end. The quarterly dividend increased from $0.68 to $0.70 per share.
Outlook, commentary and risks
The filing provides no specific full-year revenue or earnings guidance. Management expected supply-chain disruption and elevated freight costs to continue through 2022, and anticipated inventory shipments would peak earlier than the historical August-to-December period. It said available cash, operating cash flow, production financing and credit facilities were adequate for working-capital needs and obligations through the remainder of 2022, including $137.0 of current debt.
Hasbro had paused shipments and new content distribution into Russia. It recorded reserves, primarily for inventory and receivables, and expected lost Russian revenue and operating profit in the second half of 2022; 2021 Russian revenue was $115, approximately 70% in the second half. Inflation, higher materials and shipping costs, foreign-exchange movements, supply constraints, consumer demand, seasonality and retailer ordering patterns remain significant risks. Management reported compliance with debt covenants and effective disclosure controls; no material change in internal control or risk factors was reported.
Important facts for investors to verify
- How much earnings and margin improvement persists after adjusting for the prior-year eOne Music impairment and transaction costs, and for changes in segment cost allocations.
- Whether elevated inventory converts to sales without additional discounting, obsolescence or working-capital pressure.
- The effects of freight, input-cost inflation, price increases, foreign exchange and the suspension of Russian sales on second-half results.
- Whether operating cash flow recovers from the first-half decline while Hasbro funds dividends, debt repayments, acquisitions and share repurchases.
- Execution and financial contribution of D&D Beyond, and the timing of Entertainment content deliveries and related revenue recognition.