Hasbro, Inc. (HAS) Earnings & Analysis

Latest quarter

Hasbro reported third-quarter revenue of $1.6 billion, above the $1.5 billion consensus, and adjusted earnings per share of $2.90, also above the consensus. Revenue rose from $1.4 billion a year earlier, while diluted earnings per share rose to $2.77 from $1.64.

The filing attributed revenue growth primarily to Magic: The Gathering. CFO Gina Goetter said Magic generated $616.0 million in quarterly revenue, while Wizards of the Coast and Digital Gaming revenue grew 31.0%. The filing said Consumer Products revenue also increased, with gains in Marvel toys and games and new KPop Demon Hunters products partly offset by lower licensing revenue.

Hasbro’s gross margin rose to 75.9% from 70.1%, and its operating margin rose to 32.4% from 24.6%. The filing said operating profit benefited from revenue growth and tariff refunds. Hasbro reported free cash flow of $249.6 million, compared with $224.1 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Chris Cocks said Magic demand extended across new releases, older products and Secret Lair. He said The Hobbit reached its sales level with a smaller product lineup, while shipments of Reality Fracture exceeded Hasbro’s expectations. Goetter said some Magic sales expected in the fourth quarter arrived in the third because of shipment timing.

Asked about the next quarter, Cocks said Magic revenue would likely decline as shipments moved between periods, rather than because of a demand signal. He said Hasbro was “chasing demand” and would time releases around partners and fans. Asked about distribution, he said growth in the Wizards Play Network and mass retail reflected more people buying Magic and more retailers participating in the category.

Cocks said every major Magic set planned for next year would have a full product suite, and that Hasbro was scaling production capacity. In response to an analyst’s question, Goetter discussed growth expectations for next year; Cocks clarified that her comment referred to Magic rather than the entire Wizards segment.

On Consumer Products, Goetter said supply-chain productivity, lower distribution costs and business mix helped offset higher input costs. She said oil-related costs were flowing through the income statement, while mitigation measures were helping offset the pressure. Goetter said the quarter’s tariff refunds related to prior-year duties and that Hasbro was taking a more flexible approach to sourcing as trade conditions stabilized.

Goetter said Consumer Products margins would decline sequentially in the fourth quarter because the tariff refund was recognized in the third and the later quarter would carry more promotional and shipping costs. She also said video-game amortization would weigh on Wizards margins next year, with much of the Exodus expense falling around its launch.

Guidance

Hasbro raised its full-year constant-currency revenue growth outlook to 7.00%–9.00% and increased its adjusted EBITDA range. Goetter said Wizards revenue was now expected to grow 16.0%–18.0%, after the earlier outlook for low-double-digit growth.

For Consumer Products, Hasbro raised its adjusted operating margin outlook to 8.00%–10.0% from 6.00%–8.00%. Goetter said Entertainment revenue was now expected to grow 3.00%–5.00%, with an operating margin of approximately 65.0%; the earlier outlook called for slightly positive revenue growth and a margin of approximately 50.0%. Hasbro also raised its annual share-repurchase target to $400.0 million.