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Hasbro (HAS) Up 1.7% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Hasbro (HAS - Free Report) . Shares have added about 1.7% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Hasbro due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Hasbro Misses on Q1 Earnings, Gaming Demand High

Hasbro reported first-quarter 2020 results, wherein both earnings and revenues missed the Zacks Consensus Estimate. Further, the company withdrew guidance provided at its Toy Fair presentation on Feb 21, 2020. 

The company reported adjusted earnings of 57 cents per share, missing the Zacks Consensus Estimate by a penny. Moreover, the bottom line declined 25% from 76 cents per share reported in the year-ago quarter.

In the quarter under review, net revenues came in at $1,105.6 million, which lagged the consensus mark of $1,156 million. However, the top line improved 50.9% year over year. The upside can primarily be attributed to the acquisition of Entertainment One Ltd. (eOne) at the beginning of the first quarter. On a pro forma basis, net revenues declined 7.5% year over year.

Brand Performances (On PRO Forma Basis)

The Franchise Brand reported revenues of $396.5 million, up 1% year over year.

Partner Brands’ revenues advanced 6% from the prior-year quarter to $182.3 million driven by robust performance of Disney's Frozen 2.

Revenues at Hasbro Gaming amounted to $140.1 million, reflecting an improvement of 30% from the prior-year period. Moreover, its total gaming category revenues increased 40% to $340.5 million. The company is witnessing robust demand in the gaming category.

Emerging Brands’ revenues decreased 19% year over year to $94.1 million.

Meanwhile, revenues from TV/Film/Entertainment declined 29% year over year to $292.5 million. 

Segmental Revenues (On Pro Forma Basis)

Regionally, net revenues at the U.S. and Canada segment rose 20% to $428.6 million in the quarter. Moreover, operating margin increased to 16.7% from the prior-year quarter’s figure of 3.8%. The segment’s growth was driven by robust growth in gaming category, which includes MAGIC: THE GATHERING tabletop, MONOPOLY, DUNGEONS AND DRAGONS and many other Hasbro games such as THE GAME OF LIFE, JENGA, CONNECT 4 and OPERATION.

The International segment’s revenues amounted to $250.4 million, which declined 11% year over year. European region commenced the year on a strong note and revenues increased 6% in the quarter. However, store closures late in the quarter due to the coronavirus pandemic hurt the sales. The segment’s operating margin came in at negative 10.7% compared with a negative 10.8% reported in the year-ago quarter.

Meanwhile, revenues at the Entertainment, Licensing and Digital segment — which was named Entertainment and Licensing earlier — decreased 9% year over year to $84 million. The segment revenues were impacted by dismal digital gaming revenues. Moreover, the segment’s operating margin decreased to 6.2% from the prior-year quarter’s figure of 32.6%.

The newly formed eOne segment reported revenues of $342.5 million, down 27% year over year. Revenues were impacted by dismal TV and film revenues. Moreover, the segment’s operating margin decreased to a negative 9.7% from 22.1% in the prior-year quarter.

Operating Highlights

Hasbro's cost of sales, as a percentage of net revenues, declined to 23.8% from 35.5% in the prior-year quarter. Selling, distribution and administration expenses — as a percentage of net revenues — were 25.2%, compared with 30.8% in the prior-year quarter.

Balance Sheet

Cash and cash equivalents as of Mar 29, 2020 amounted to $1,237.9 million, up from $1,196.6 million on Mar 31, 2019. The company announced its $1.5 billion revolving credit facility is also available. At the end of the reported quarter, inventories totaled $444.4 million compared with $491.8 million in the comparable year-ago period. As of Mar 29, 2020, long-term debt increased to $5,156.3 million from $1,695.5 million from Mar 31, 2019. The company’s next major debt maturity is $300 million in May 2021.

The company is also committed to paying dividends. During the first quarter, the company paid divided worth $93.2 million. The company’s next dividend of 68 cents, will be payable on May 15, 2020 to shareholders of record at the close of business as of May 1.

Coronavirus Update

China, which represents nearly 55% of the company’s manufacturing productions, is currently operating at planned capacity. In the first quarter, production in China was lower than planned. Hasbro announced it will be well poised to meet the holiday demand as production increases during the summer months. However, outside China, production varies depending on local government and safety considerations.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -64.85% due to these changes.

VGM Scores

At this time, Hasbro has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Hasbro has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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