Hasbro, Inc. — Form 10-Q Summary
Period: Quarter ended September 27, 2020 (13 weeks) and nine months ended September 27, 2020 (39 weeks). Financial amounts below are in millions of dollars unless stated otherwise. The unaudited results include Entertainment One (eOne) from its December 30, 2019 acquisition; 2019 comparisons exclude eOne.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $1,776.6 | $1,575.2 | $3,742.5 | $3,292.2 |
| Operating profit | $336.6 | $297.2 | $315.5 | $461.7 |
| Operating margin | 19.0% | 18.9% | 8.4% | 14.0% |
| Net earnings attributable to Hasbro | $220.9 | $212.9 | $117.3 | $253.1 |
| Diluted EPS | $1.61 | $1.67 | $0.85 | $1.99 |
| Operating cash flow | Not separately stated | Not separately stated | $494.3 | $389.6 |
Q3 revenue rose 13%, with $193.5 million from eOne included; eOne contributed $696.9 million of nine-month revenue. Q3 reported operating profit improved, while nine-month operating profit and EPS fell sharply. Nine-month results included $166.0 million of acquisition and related costs, $72.3 million of eOne acquired-intangible amortization, and $11.6 million of cost-savings restructuring charges. Q3 EPS also reflected $0.14 of acquired-intangible amortization, $0.10 of UK tax-related expense, and $0.03 of acquisition costs.
Revenue trends were mixed: Q3 U.S. and Canada grew 9%, while International fell 8% and Entertainment, Licensing and Digital fell 23%; eOne reported a $25.9 million operating loss. For the first nine months, U.S. and Canada revenue was flat, International fell 17%, and Entertainment, Licensing and Digital fell 14%; eOne reported a $65.0 million operating loss. Gaming was comparatively strong: total gaming revenue increased 21% in Q3 and 11% year to date.
Cash, debt and liquidity
- Cash and cash equivalents, including $71.2 million restricted for production financing, were $1,132.4 million at quarter-end, versus $1,060.4 million a year earlier.
- Operating cash flow was $494.3 million for the first nine months. Investing cash outflow was $4,471.7 million, principally reflecting $4,403.9 million spent on the eOne acquisition, net of cash acquired. Financing cash inflow was $550.5 million.
- Long-term debt had $5,183.8 million of principal outstanding, including $369.3 million classified as current; the balance sheet also showed $10.0 million of short-term borrowings. Interest expense was $153.7 million for the nine-month period, versus $67.1 million a year earlier.
- Unused availability under the $1.5 billion revolving credit facility was approximately $1,497.3 million. Hasbro reported compliance with facility and term-loan covenants. Management said cash, expected operating cash flow and available credit were adequate for working capital needs over the next 12 months.
- The quarterly dividend remained $0.68 per share. Share repurchases were suspended while the company prioritizes deleveraging.
Material changes, outlook and risks
- The eOne acquisition materially changed the company’s scale, asset base and debt profile. At September 27, goodwill was $3,644.1 million, including $3,149.3 million assigned to eOne; acquired content assets were $619.5 million. Purchase accounting remained provisional, with final allocation expected within one year of acquisition.
- COVID-19 disrupted manufacturing, retail access, entertainment production and theatrical releases. Management said most partner factories and warehouses were operating and that the company believed it was positioned for holiday demand, while warning that renewed outbreaks could disrupt supply and prevent recovery of delayed production or sales. Latin America remained particularly challenged.
- Management described a robust 2021 eOne entertainment slate as expected, but said live-action productions and film releases were delayed and some releases moved to streaming or other platforms. No quantified full-year financial guidance is provided in the filing text.
- Other significant risks include retailer payment delays or bankruptcies, customer concentration, seasonality and compressed holiday shipping schedules, foreign-exchange exposure, and uncertainty around entertainment release timing. Hasbro recorded $40.9 million of impairment charges related to a change in strategy for combined-company entertainment assets. The UK tax-rate change resulted in $13.7 million of additional tax expense in Q3.
- Outstanding commitments included approximately $605.9 million of purchase commitments and $226.9 million of disclosed eOne film/TV, first-look and lease obligations. The company stated that its legal proceedings were not believed material to its business or financial condition.
Important facts for investors to verify
- How much of reported revenue growth and future earnings reflects eOne versus legacy Hasbro operations, and whether eOne can move from operating losses to profitability.
- The pace of debt reduction, upcoming maturities—including $300 million of notes due in 2021—and ongoing interest expense after the acquisition.
- Whether COVID-related manufacturing, retail, customer-collection and entertainment-release disruptions affect holiday sales and the expected 2021 content slate.
- The final eOne purchase-price allocation, recoverability of acquired goodwill and content assets, and any further impairments or integration costs.
- The sustainability of operating cash flow, working-capital requirements, dividend payments and the decision to resume share repurchases.