Hasbro, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. Hasbro reports results for the quarter ended July 2, 2023. The quarter and comparable 2022 quarter were each 13 weeks; the six-month periods were 27 weeks in 2023 and 26 weeks in 2022. Hasbro operates Consumer Products, Wizards of the Coast and Digital Gaming, and Entertainment segments.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net revenue | $1,210.0 million | $1,339.2 million | $2,211.0 million | $2,502.3 million |
| Operating profit (loss) | $(188.6) million | $219.1 million | $(170.7) million | $339.1 million |
| Net earnings (loss) attributable to Hasbro | $(235.0) million | $142.0 million | $(257.1) million | $203.2 million |
| Diluted earnings (loss) per share | $(1.69) | $1.02 | $(1.85) | $1.46 |
| Operating margin | (15.6)% | 16.4% | (7.7)% | 13.6% |
Cash flow and liquidity. Operating cash flow was $119.2 million for the first six months, versus $147.8 million a year earlier. Investing activities used $115.8 million, including $112.1 million of capital expenditures; financing activities used $296.2 million, including $193.8 million of dividends paid. Cash and cash equivalents, including restricted cash, were $216.6 million at July 2, 2023, down from $628.2 million a year earlier. Current assets were $2.509 billion and current liabilities $1.950 billion.
Debt. The balance sheet reported $3.668 billion of long-term debt, $69.4 million of current long-term debt and $148.2 million of short-term borrowings. The filing describes total long-term debt principal of approximately $3.8 billion, with maturities from 2024 through 2044. The $148.2 million short-term borrowing balance is production financing. Hasbro reported compliance with its financial covenants and no borrowings under its $1.5 billion committed revolving credit facility at quarter-end; approximately $1.5 billion was available, inclusive of the commercial paper program. Interest expense was $46.6 million for Q2 and $92.9 million for the six months.
Material changes and operating drivers
- Q2 revenue fell 10%; first-half revenue fell 12%. Consumer Products revenue declined 11% in Q2 and 16% in the first half; Wizards of the Coast and Digital Gaming declined 11% and 2%; Entertainment declined 3% and 12%, respectively.
- For the first half, revenue declined across all brand portfolios: Franchise Brands 5%, Partner Brands 28%, Portfolio Brands 20%, and Non-Hasbro Branded Film & TV 13%. Lower sales reflected, among other factors, expired Disney Frozen and Princess licenses, fewer comparable Star Wars and Marvel entertainment releases, and timing of MAGIC: THE GATHERING set releases. Transformers, Indiana Jones and digital gaming provided offsets.
- Q2 operating results included $296.2 million of non-cash charges from impairment of the Film and TV reporting unit: $231.2 million of goodwill and $65.0 million related to the eOne Trademark. The filing reports the combined charges as $279.9 million after tax. The Entertainment segment also recorded a $25.0 million production-asset impairment for Dungeons & Dragons: Honor Among Thieves.
- Wizards of the Coast and Digital Gaming remained profitable but operating profit fell 37% in Q2 and 34% in the first half, reflecting lower tabletop revenue, higher royalties on the Lord of the Rings set, and increased development, talent and marketing costs. Consumer Products reported Q2 operating profit of $11.4 million but a first-half operating loss of $34.6 million. Entertainment reported operating losses of $324.2 million in Q2 and $332.9 million in the first half, largely due to impairment charges.
- Inventory was $731.3 million, down 16% from a year earlier, as Hasbro managed retail inventory and supply. Accounts receivable were $877.0 million; days sales outstanding rose to 66 from 59 a year earlier.
Outlook, management commentary and risks
- Hasbro said it expects available cash, operating cash flow, financing facilities and production financing to fund working capital and obligations for the remainder of 2023. The filing provides no specific full-year revenue or earnings guidance.
- Blueprint 2.0 focuses on fewer, larger, more profitable brands and exiting certain non-core activities. The Operational Excellence program targets $250 million to $300 million in annualized run-rate savings by the end of 2025; Hasbro reported an additional $84 million of cumulative gross savings during the first half. Approximately 1,000 positions, or about 15% of global full-time employees, were slated for elimination in 2023.
- On August 3, 2023, after quarter-end, Hasbro announced a definitive agreement to sell its eOne Film and TV business to Lionsgate for approximately $500 million, including $375 million cash subject to adjustments and the assumption of production financing loans. Closing was expected before fiscal year-end, subject to approvals and customary conditions. Hasbro intended to use net proceeds to retire floating-rate debt and for general corporate purposes. Family Brands, including Peppa Pig and PJ Masks, are excluded.
- Management cited the writers’ strike and the July 2023 actors’ strike as potential causes of delays to entertainment development, production and releases, with possible effects on entertainment revenue and related merchandise. Other disclosed risks include consumer and retail weakness, inflation and input costs, competition, reliance on partners and licensed brands, China manufacturing concentration, foreign exchange, seasonality and execution of cost-saving and strategic plans.
- The quarterly dividend remained $0.70 per share; a $0.70 dividend was declared payable August 15, 2023. No shares were repurchased in the first half.
Important facts for investors to verify
- Whether the eOne sale closes on the expected terms and schedule, and the final cash proceeds and debt assumed.
- Whether operating cash flow, liquidity and debt repayment remain adequate as seasonal working-capital needs rise in the second half.
- Whether Hasbro achieves the $250 million to $300 million savings target and what restructuring costs or workforce impacts remain.
- Whether entertainment labor disruptions, release timing and the impairment outlook affect future content revenue and asset values.
- Whether brand and segment sales trends improve, particularly following license expirations and lower tabletop gaming sales; note the six-month comparison includes an extra week in 2023.