Hasbro Reports Revenue, Operating Profit and Net Earnings Growth for Second Quarter 2017
Second quarter 2017 revenues grew 11% to $972.5 million including revenue growth of 16% in the U.S. and Canada segment and 6% in the International segment; Entertainment and Licensing segment revenues declined 1%;
Growth in Franchise Brands, Hasbro Gaming and Partner Brands offset a decline in Emerging Brands;
Operating profit increased 18% to $100.0 million, or 10.3% of net revenues;
Net earnings increased 30% to $67.7 million or $0.53 per diluted share; Reported net earnings include a $0.01 per diluted share benefit versus second quarter 2016 from the adoption of FASB ASU No. 2016-09;
$1.4 billion in cash and cash equivalents at quarter end.
PAWTUCKET, R.I.--(BUSINESS WIRE)-- Hasbro, Inc. (NASDAQ: HAS) today reported financial results for the second quarter 2017. Net revenues for the second quarter 2017 increased 11% to $972.5 million versus $878.9 million in 2016.
Net earnings for the second quarter 2017 increased 30% to $67.7 million, or $0.53 per diluted share, compared to $52.1 million, or $0.41 per diluted share, in 2016. Reported net earnings include a $0.01 per diluted share benefit versus second quarter 2016 from the adoption of FASB ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting.
"The Hasbro team executed another very strong quarter across the Brand Blueprint. Story-led brands and innovative brand initiatives drove double-digit revenue growth and an increase in operating profit margin," said Brian Goldner, Hasbro's chairman and chief executive officer. "Franchise Brand, Hasbro Gaming and Partner Brand revenues grew year-over-year, and revenue increased across all geographic regions. We entered the important second half of the year with strong consumer momentum, a robust and diverse entertainment slate and compelling new brand initiatives."
"Our balance sheet and cash flows remain strong. While we are seeing some softness in economic conditions in Brazil and the U.K., our brands continue to resonate with consumers," said Deborah Thomas, Hasbro's chief financial officer. "We are well positioned with innovative new product driven by strong entertainment as we enter the second half of the year."
Second Quarter 2017 Major Segment Performance
Net Revenues ($ Millions) Operating Profit ($ Millions)
Q2 2017 Q2 2016 % Change Q2 2017 Q2 2016 % Change
U.S. and Canada $494.4 $425.9 +16% $81.6 $58.0 +41%
International $426.6 $401.1 +6% $16.9 $29.7 -43%
Entertainment and Licensing $51.5 $51.9 -1% $11.3 $13.8 -18%
Second quarter 2017 U.S. and Canada segment net revenues increased 16% to $494.4 million compared to $425.9 million in 2016. Revenues grew in Franchise Brands, Partner Brands and Hasbro Gaming, but declined in Emerging Brands. The U.S. and Canada segment reported operating profit increased 41% to $81.6 million, or 16.5% of net revenues, compared to $58.0 million, or 13.6% of net revenues, in 2016.
International segment net revenues increased 6% to $426.6 million compared to $401.1 million in 2016. Second quarter 2017 International segment revenues include a favorable $2.4 million impact of foreign exchange. Revenue growth in Franchise Brands and Hasbro Gaming offset declines in Partner Brands and Emerging Brands. On a regional basis, Europe revenues increased 4%, Latin America increased 3% and Asia Pacific increased 18%. Emerging markets revenues increased 7% in the quarter. International segment operating profit decreased 43% to $16.9 million, or 4.0% of net revenues, compared to $29.7 million, or 7.4% of net revenues, in 2016.
Entertainment and Licensing segment net revenues decreased 1% to $51.5 million compared to $51.9 million in 2016. Growth in digital gaming, led by Backflip Studios, was offset by declines in entertainment revenues. The Entertainment and Licensing segment operating profit decreased $2.5 million, or 18%, to $11.3 million, or 22.0% of net revenues, compared to $13.8 million, or 26.6% of net revenues, in 2016.
Second Quarter 2017 Brand Portfolio Performance
Net Revenues ($ Millions)
Q2 2017 Q2 2016 % Change
Six Months
2017
Six Months
2016
% Change
Franchise Brands $545.7 $452.3 +21% $976.5 $868.6 +12%
Partner Brands $230.0 $227.1 +1% $443.0 $485.3 -9%
Hasbro Gaming* $133.9 $126.4 +6% $269.6 $226.7 +19%
Emerging Brands $62.9 $73.2 -14% $133.1 $129.5 +3%
*Hasbro's total gaming category, including all gaming revenue, most notably MAGIC: THE GATHERING and MONOPOLY, which are included in Franchise Brands in the table above, totaled $273.3 million for the second quarter 2017, up 20%, versus $227.7 million in the second quarter 2016 and up 15% to $526.6 million for the six months 2017 versus $458.8 million for the six months 2016. Hasbro believes its gaming portfolio is a competitive differentiator and views it in its entirety.
Second quarter 2017 Franchise Brand revenues increased 21% to $545.7 million driven by revenue growth in TRANSFORMERS, MAGIC: THE GATHERING, NERF and MONOPOLY.
Partner Brand revenues increased 1% to $230.0 million. BEYBLADE, DREAMWORKS' TROLLS, MARVEL and DISNEY PRINCESS grew revenues in the quarter. STAR WARS is well positioned ahead of the September 1st on-shelf date for STAR WARS: THE LAST JEDI merchandise. Marvel has a robust entertainment slate this year and both MARVEL'S GUARDIANS OF THE GALAXY Vol. 2 and SPIDER-MAN: HOMECOMING contributed positively to the second quarter and have good momentum entering the second half of the year.
Hasbro Gaming revenues grew 6% to $133.9 million driven by Hasbro's diverse gaming portfolio, including face-to-face gaming, off-the-board gaming and digital gaming. Success of several new games along with traditional properties, including DUNGEONS & DRAGONS and OPERATION, drove the gains in the quarter. Hasbro's total gaming category grew 20% to $273.3 million and saw incremental revenue growth from MAGIC: THE GATHERING and MONOPOLY.
Emerging Brands revenue declined 14% to $62.9 million, primarily driven by declines in PLAYSKOOL, SUPER SOAKER and EASY-BAKE OVEN products. BABY ALIVE revenues were down slightly in the quarter, primarily due to Brazil, but revenues are up in the first half.
Dividend and Share Repurchase
The Company paid $71.3 million in cash dividends to shareholders during the second quarter 2017. The next quarterly cash dividend payment of $0.57 per common share is scheduled for August 15, 2017 to shareholders of record at the close of business on August 1, 2017.
During the second quarter, Hasbro repurchased 6,100 shares of common stock at a total cost of $0.6 million and an average price of $94.99 per share. At quarter-end, $309.4 million remained available in the current share repurchase authorization.
Conference Call Webcast
Hasbro will webcast its second quarter 2017 earnings conference call at 8:30 a.m. Eastern Time today. To listen to the live webcast and access the accompanying presentation slides, please go to
http://investor.hasbro.com. The replay of the call will be available on Hasbro's web site approximately 2 hours following completion of the call.
About Hasbro: Hasbro (NASDAQ: HAS) is a global play and entertainment company committed to Creating the World's Best Play Experiences. From toys and games to television, movies, digital gaming and consumer products, Hasbro offers a variety of ways for audiences to experience its iconic brands, including NERF, MY LITTLE PONY, TRANSFORMERS, PLAY-DOH, MONOPOLY, LITTLEST PET SHOP and MAGIC: THE GATHERING. The Company's Hasbro Studios and its film label, Allspark Pictures, are building its brands globally through great storytelling and content on all screens. Through its commitment to corporate social responsibility and philanthropy, Hasbro is helping to make the world a better place for children and their families. Learn more at
www.hasbro.com, and follow us on Twitter (@Hasbro & @HasbroNews) and Instagram (@Hasbro).
© 2017 Hasbro, Inc. All Rights Reserved.
Certain statements in this release contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include expectations concerning the Company's potential performance in the future and the Company's ability to achieve its other financial and business goals and may be identified by the use of forward-looking words or phrases. The Company's actual actions or results may differ materially from those expected or anticipated in the forward-looking statements due to both known and unknown risks and uncertainties. Specific factors that might cause such a difference include, but are not limited to: (i) the Company's ability to design, develop, produce, manufacture, source and ship products on a timely and cost-effective basis, as well as interest in and purchase of those products by retail customers and consumers in quantities and at prices that will be sufficient to profitably recover the Company's costs; (ii) downturns in economic conditions affecting the Company's markets which can negatively impact the Company's retail customers and consumers, and which can result in lower employment levels, lower consumer disposable income and spending, including lower spending on purchases of the Company's products; (iii) other factors which can lower discretionary consumer spending, such as higher costs for fuel and food, drops in the value of homes or other consumer assets, and high levels of consumer debt; (iv) potential difficulties or delays the Company may experience in implementing cost savings and efficiency enhancing initiatives; (v) other economic and public health conditions or regulatory changes in the markets in which the Company and its customers and suppliers operate which could create delays or increase the Company's costs, such as higher commodity prices, labor costs or transportation costs, or outbreaks of disease; (vi) currency fluctuations, including movements in foreign exchange rates, which can lower the Company's net revenues and earnings, and significantly impact the Company's costs; (vii) the concentration of the Company's customers, potentially increasing the negative impact to the Company of difficulties experienced by any of the Company's customers or changes in their purchasing or selling patterns; (viii) consumer interest in and acceptance of the Discovery Family Channel, and programming created by Hasbro Studios, and other factors impacting the financial performance of the network and Hasbro Studios; (ix) the inventory policies of the Company's retail customers, including retailers' potential decisions to lower their inventories, even if it results in lost sales, as well as the concentration of the Company's revenues in the second half and fourth quarter of the year, which coupled with reliance by retailers on quick response inventory management techniques increases the risk of underproduction of popular items, overproduction of less popular items and failure to achieve compressed shipping schedules; (x) delays, increased costs or difficulties associated with any of our or our partners' planned digital applications or media initiatives; (xi) work disruptions, which may impact the Company's ability to manufacture or deliver product in a timely and cost-effective manner; (xii) the bankruptcy or other lack of success of one of the Company's significant retailers which could negatively impact the Company's revenues or bad debt exposure; (xiii) the impact of competition on revenues, margins and other aspects of the Company's business, including the ability to offer Company products which consumers choose to buy instead of competitive products, the ability to secure, maintain and renew popular licenses and the ability to attract and retain talented employees; (xiv) concentration of manufacturing for many of the Company's products in the People's Republic of China and the associated impact to the Company of social, economic or public health conditions and other factors affecting China, the movement of products into and out of China, the cost of producing products in China and exporting them to other countries; (xv) the risk of product recalls or product liability suits and costs associated with product safety regulations; (xvi) the impact of other market conditions, third party actions or approvals and competition which could reduce demand for the Company's products or delay or increase the cost of implementation of the Company's programs or alter the Company's actions and reduce actual results; (xvii) the impact of litigation or arbitration decisions or settlement actions; and (xviii) other risks and uncertainties as may be detailed from time to time in the Company's public announcements and Securities and Exchange Commission ("SEC") filings. The Company undertakes no obligation to make any revisions to the forward-looking statements contained in this release or to update them to reflect events or circumstances occurring after the date of this release.
This press release includes a non-GAAP financial measure as defined under SEC rules, specifically EBITDA. EBITDA represents net earnings attributable to Hasbro, Inc. excluding net loss attributable to noncontrolling interests, interest expense, income taxes, depreciation and amortization. As required by SEC rules, we have provided reconciliation on the attached schedule of this measure to the most directly comparable GAAP measure. Management believes that EBITDA is one of the appropriate measures for evaluating the operating performance of the Company because it reflects the resources available for strategic opportunities including, among others, to invest in the business, strengthen the balance sheet, and make strategic acquisitions. This non-GAAP measure should be considered in addition to, not as a substitute for, or superior to, net earnings or other measures of financial performance prepared in accordance with GAAP as more fully discussed in the Company's financial statements and filings with the SEC. As used herein, "GAAP" refers to accounting principles generally accepted in the United States of America.
HAS-E
HASBRO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)
July 2, 2017 June 26, 2016
ASSETS
Cash and Cash Equivalents $ 1,433,500 $ 924,098
Accounts Receivable, Net 846,547 703,821
Inventories 557,507 572,391
Other Current Assets 257,251 323,046
Total Current Assets 3,094,805 2,523,356
Property, Plant and Equipment, Net 268,973 242,607
Other Assets 1,548,965 1,578,422
Total Assets $ 4,912,743 $ 4,344,385
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY
Short-term Borrowings $ 186,863 $ 5,400
Current Portion of Long-term Debt 349,916 -
Payables and Accrued Liabilities 935,468 739,620
Total Current Liabilities 1,472,247 745,020
Long-term Debt 1,199,114 1,547,753
Other Liabilities 408,888 402,614
Total Liabilities 3,080,249 2,695,387
Redeemable Noncontrolling Interests - 36,465
Total Shareholders' Equity 1,832,494 1,612,533
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Equity
$ 4,912,743 $ 4,344,385
HASBRO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter Ended Six Months Ended
(Thousands of Dollars and Shares Except Per Share Data)
July 2,
2017
% Net
Revenues
June 26,
2016
% Net
Revenues
July 2,
2017
% Net
Revenues
June 26,
2016
% Net
Revenues
Net Revenues $ 972,506 100.0 % $ 878,945 100.0 % $ 1,822,169 100.0 % $ 1,710,125 100.0 %
Costs and Expenses:
Cost of Sales 368,233 37.9 % 321,676 36.6 % 674,315 37.0 % 611,916 35.8 %
Royalties 79,152 8.1 % 69,408 7.9 % 143,532 7.9 % 139,377 8.2 %
Product Development 62,793 6.5 % 63,671 7.2 % 125,379 6.9 % 120,835 7.1 %
Advertising 92,374 9.5 % 86,957 9.9 % 173,310 9.5 % 166,816 9.8 %
Amortization of Intangibles 7,881 0.8 % 8,691 1.0 % 15,762 0.9 % 17,382 1.0 %
Program Production Cost Amortization 5,188 0.5 % 5,033 0.6 % 10,758 0.6 % 11,219 0.7 %
Selling, Distribution and Administration 256,901 26.4 % 238,635 27.2 % 500,786 27.5 % 471,790 27.6 %
Operating Profit 99,984 10.3 % 84,874 9.7 % 178,327 9.8 % 170,790 10.0 %
Interest Expense 24,224 2.5 % 23,914 2.7 % 48,680 2.7 % 47,958 2.8 %
Other Income, Net (11,126 ) -1.1 % (6,060 ) -0.7 % (28,076 ) -1.5 % (3,401 ) -0.2 %
Earnings before Income Taxes 86,886 8.9 % 67,020 7.6 % 157,723 8.7 % 126,233 7.4 %
Income Taxes 19,163 2.0 % 17,601 2.0 % 21,401 1.2 % 29,843 1.7 %
Net Earnings 67,723 7.0 % 49,419 5.6 % 136,322 7.5 % 96,390 5.6 %
Net Loss Attributable to Noncontrolling Interests - 0.0 % (2,687 ) -0.3 % - 0.0 % (4,467 ) -0.3 %
Net Earnings Attributable to Hasbro, Inc. $ 67,723 7.0 % $ 52,106 5.9 % $ 136,322 7.5 % $ 100,857 5.9 %
Per Common Share
Net Earnings Attributable to Hasbro, Inc.
Basic $ 0.54 $ 0.42 $ 1.09 $ 0.80
Diluted $ 0.53 $ 0.41 $ 1.07 $ 0.79
Cash Dividends Declared $ 0.57 $ 0.51 $ 1.14 $ 1.02
Weighted Average Number of Shares
Basic 125,263 125,475 125,221 125,371
Diluted 127,367 127,041 127,296 126,995
HASBRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Six Months Ended
July 2, 2017 June 26, 2016
Cash Flows from Operating Activities:
Net Earnings $ 136,322 $ 96,390
Non-cash Adjustments 128,351 119,971
Changes in Operating Assets and Liabilities 101,433 89,575
Net Cash Provided by Operating Activities 366,106 305,936
Cash Flows from Investing Activities:
Additions to Property, Plant and Equipment (66,321 ) (66,390 )
Other (1,465 ) 20,431
Net Cash Utilized by Investing Activities (67,786 ) (45,959 )
Cash Flows from Financing Activities:
Net Proceeds from (Repayments of) Short-term Borrowings 14,258 (159,136 )
Purchases of Common Stock (18,561 ) (57,337 )
Stock-based Compensation Transactions 9,902 36,388
Dividends Paid (134,655 ) (121,311 )
Employee Taxes Paid for Shares Withheld (31,400 ) (18,672 )
Other - 762
Net Cash Utilized by Financing Activities (160,456 ) (319,306 )
Effect of Exchange Rate Changes on Cash 13,351 6,677
Cash and Cash Equivalents at Beginning of Year 1,282,285 976,750
Cash and Cash Equivalents at End of Period $ 1,433,500 $ 924,098
HASBRO, INC.
SUPPLEMENTAL FINANCIAL DATA
(Unaudited)
(Thousands of Dollars) Quarter Ended Six Months Ended
July 2,
2017
June 26,
2016
%
Change
July 2,
2017
June 26,
2016
%
Change
Major Segment Results
U.S. and Canada Segment:
External Net Revenues $ 494,427 $ 425,899 16 % $ 946,004 $ 869,547 9 %
Operating Profit 81,557 57,953 41 % 146,311 136,288 7 %
Operating Margin 16.5 % 13.6 % 15.5 % 15.7 %
International Segment:
External Net Revenues 426,564 401,129 6 % 771,845 746,166 3 %
Operating Profit 16,884 29,654 -43 % 17,428 32,507 -46 %
Operating Margin 4.0 % 7.4 % 2.3 % 4.4 %
Entertainment and Licensing Segment:
External Net Revenues 51,494 51,896 -1 % 104,223 94,391 10 %
Operating Profit 11,324 13,830 -18 % 22,670 19,272 18 %
Operating Margin 22.0 % 26.6 % 21.8 % 20.4 %
International Segment Net Revenues by Major Geographic Region
Europe $ 237,607 $ 228,124 4 % $ 453,727 $ 452,247 0 %
Latin America 99,869 97,368 3 % 164,625 152,964 8 %
Asia Pacific 89,088 75,637 18 % 153,493 140,955 9 %
Total $ 426,564 $ 401,129 $ 771,845 $ 746,166
Net Revenues by Brand Portfolio (1)
Franchise Brands $ 545,718 $ 452,268 21 % $ 976,462 $ 868,642 12 %
Partner Brands 230,015 227,088 1 % 442,977 485,313 -9 %
Hasbro Gaming 133,872 126,438 6 % 269,639 226,666 19 %
Emerging Brands 62,901 73,151 -14 % 133,091 129,504 3 %
Total Net Revenues $ 972,506 $ 878,945 $ 1,822,169 $ 1,710,125
Hasbro's total gaming category, including all gaming revenue, most notably MAGIC: THE GATHERING and MONOPOLY, totaled $273,261 and $526,550 for the three and six months ended July 2, 2017, respectively, up 20% and 15%, respectively, from revenues of $227,698 and $458,845 for the three and six months ended June 26, 2016, respectively.
(1) For the six months ended July 2, 2017, first quarter revenues of $7,141 were reclassified from Hasbro Gaming to Franchise Brands to conform to the presentation for the quarter ended July 2, 2017. Including this reclassification, first quarter 2017 net revenues by Brand Portfolio were:
Franchise Brands $ 430,744
Partner Brands 212,962
Hasbro Gaming 135,767
Emerging Brands 70,190
Total Net Revenues $ 849,663
Reconciliation of EBITDA
Net Earnings Attributable to Hasbro, Inc. $ 67,723 $ 52,106 $ 136,322 $ 100,857
Net Loss Attributable to Noncontrolling Interests - (2,687 ) - (4,467 )
Interest Expense 24,224 23,914 48,680 47,958
Income Taxes 19,163 17,601 21,401 29,843
Depreciation 38,089 31,965 65,791 57,091
Amortization of Intangibles 7,881 8,691 15,762 17,382
EBITDA $ 157,080 $ 131,590 $ 287,956 $ 248,664
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