Hasbro, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter ended June 27, 2021 (13 weeks), with six-month results through that date (26 weeks). Amounts are in millions of dollars except per-share data. Hasbro reports Consumer Products, Wizards of the Coast & Digital Gaming, and Entertainment, plus Corporate and Other.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net revenue | $1,322.2 | $860.3 | $2,437.0 | $1,965.9 |
| Operating profit (loss) | $76.6 | $2.2 | $223.9 | $(21.1) |
| Operating margin | 6% | 0.3% | 9% | (1%) |
| Net earnings (loss) attributable to Hasbro | $(22.9) | $(33.9) | $93.3 | $(103.6) |
| Diluted EPS | $(0.17) | $(0.25) | $0.68 | $(0.75) |
| Cash dividends declared per share | $0.68 | $0.68 | $1.36 | $1.36 |
Q2 revenue rose 54% reported, including $35.1 of favorable foreign-currency translation; excluding currency, it increased 50%. Six-month revenue grew 24% reported, or 21% excluding $53.4 of favorable currency translation. Q2 revenue growth was broad: Consumer Products rose 33% to $689.2, Wizards of the Coast & Digital Gaming rose 118% to $406.3, and Entertainment rose 47% to $226.7. For the first half, those segments grew 23% and 63%, respectively, while Entertainment declined 7%.
Wizards’ Q2 operating profit was $192.9 (47% segment margin), up from $74.1 (40%). Consumer Products returned to operating profit of $17.8 from a $45.3 loss. Entertainment recorded a $113.7 operating loss, including the $101.8 eOne Music impairment; excluding that charge, the segment’s Q2 operating loss was $11.9.
Q2 pretax earnings were $41.1 versus a $43.7 loss. Income tax expense was $63.0, including a $39.4 charge from the UK tax-rate change, contributing to the reported net loss. First-half pretax earnings were $170.6 and income tax expense was $75.0; the six-month effective tax rate was 43.9%, affected by discrete items and the eOne Music impairment’s lack of a corresponding tax benefit.
Cash flow, balance sheet and capital
- First-half operating cash flow was $577.1, up from $258.2, reflecting higher earnings and improved working capital, partly offset by greater film and television production spending.
- Investing cash outflow was $66.3, compared with $4,454.8 in 2020, when the eOne acquisition used $4.4 billion. Capital expenditures were $63.1.
- Financing cash outflow was $718.4, primarily reflecting debt repayments and $187.5 of dividends paid. Cash, cash equivalents and restricted cash ended at $1,228.2, down from $1,449.7 at year-end 2020.
- At June 27, total debt carrying value was approximately $4.58 billion, including $189.6 current debt and $4,388.7 long-term debt on the balance sheet. Cash was $1,228.2. The company repaid $300 of 3.15% notes and $265 of term loans during the first half, including a $250 repayment of variable-rate notes in Q2.
- Current assets were $3,616.4 and current liabilities were $2,045.6. The company had $1.5 billion available under its revolving credit facility, no outstanding commercial-paper or revolver borrowings, and reported compliance with debt covenants.
- Share repurchases remained suspended while Hasbro prioritized deleveraging. The quarterly dividend remained $0.68 per share.
Material changes and unusual items
- On June 29, after quarter-end, Hasbro completed the sale of eOne Music. The filing cites an agreed sale price of $385.0, subject to adjustments, and approximately $397.0 of net proceeds, also subject to final working-capital and net-debt adjustments. The business remained in reported results because the sale closed in Q3 and did not qualify as discontinued operations.
- Hasbro recorded a $101.8 non-cash goodwill impairment and $9.5 of cash transaction expenses related to the eOne Music sale. Q2 results also included $21.8 of eOne acquired-intangible amortization and $1.9 of eOne retention-award expense.
- Other income included a first-half gain from a legal settlement relating to historical eOne foreign-exchange hedging activities; the notes identify a $25.6 gain in Q1.
- Hasbro realigned its reporting segments in Q1 2021; prior-period segment figures were reclassified, without changing previously reported consolidated results.
- First-half 2020 results included $160.1 of acquisition and related costs, including eOne integration, restructuring and impairment charges, making the year-over-year earnings comparison less directly comparable.
Outlook, management commentary and risks
The filing provides no quantitative full-year revenue or earnings guidance. Management said available cash, expected operating cash flow, production financing and access to commercial paper or credit lines should cover working-capital needs for the remainder of 2021. The company noted that consumer-products sales are historically weighted to the second half and holiday season; interim results are not necessarily indicative of full-year performance.
Management described ongoing COVID-19 effects, including manufacturing interruptions, port capacity constraints, elevated ocean and air freight costs, retail and e-commerce disruption, and delays or reduced production of entertainment content. It said these disruptions could continue through the remainder of 2021. Other cited risks include changing consumer demand, reliance on third-party manufacturers and licensors, customer concentration, foreign-exchange movements, entertainment release timing, and the ability to integrate eOne and execute digital and content initiatives. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Final eOne Music sale proceeds and closing adjustments, and the resulting effect on debt and interest expense.
- How much of reported growth and profitability is repeatable, particularly Wizards’ strong performance, after considering product launches and prior-year pandemic comparisons.
- Whether freight, sourcing and production constraints persist or further affect margins and product availability.
- The full-year tax impact of the UK rate increase and other discrete tax items, including the $39.4 Q2 charge.
- Debt repayment progress, covenant headroom, and whether liquidity remains adequate through the seasonally important second half.
- Entertainment segment performance excluding the eOne Music impairment and the timing and economics of future content deliveries.