Hasbro Reports Q2
Hasbro, Inc., reported financial results for the second quarter 2013. Net revenues for the quarter were $766.3 million, a 6 percent decline compared to $811.5 million in 2012. Second quarter 2013 net revenues include a favorable $1 million impact of foreign exchange.
As adjusted, net earnings for the second quarter 2013 were $38.3 million, or $0.29 per diluted share, compared to $43.4 million, or $0.33 per diluted share in 2012. This excludes pre-tax partial pension settlement charges of $2.5 million, or $0.01 per diluted share, associated with previously disclosed restructuring actions. Second quarter 2013 net earnings were $36.5 million, or $0.28 per diluted share, as reported.
U.S. and Canada segment net revenues were $389.2 million compared to $406.6 million in 2012. The results reflect growth in the Games, Girls, and Preschool categories. The U.S. and Canada segment reported operating profit of $59 million compared to $60.9 million in 2012.
International segment net revenues were $340.2 million compared to $360.5 million in 2012. Net revenues in the International segment include a favorable $1.2 million impact of foreign exchange. Revenues in the International segment reflect growth in emerging markets as well as the Games, Girls, and Preschool categories. The International segment reported operating profit of $14.8 million compared to $29.9 million in 2012.
Entertainment and Licensing segment net revenues were $35.3 million compared to $43.2 million in 2012. Second quarter 2012 revenues reflected a higher mix of revenues from television programming sales for digital distribution. The Entertainment and Licensing segment reported an operating profit of $3.7 million compared to $8.2 million in 2012.
For the second quarter 2013, net revenues in the Boys category decreased 35 percent to $253.7 million. Nerf was up in the quarter; however, several brands, including Marvel and Beyblade, faced difficult comparisons with the second quarter 2012.
The Games category posted its third consecutive quarter of growth, increasing revenues 19 percent in the second quarter 2013 versus last year. Games Franchise Brands such as Magic: The Gathering and Monopoly were up in the quarter. Additionally, many other Games brands grew including Twister, Jenga, and the Elefun & Friends collection.
The Girls category posted its fourth straight quarter of growth, increasing 43 percent in the quarter. Furby and My Little Pony were the primary contributors to the strong year-over-year growth.
The Preschool category also grew in the second quarter, increasing 4 percent to $107.8 million. Play-doh, Playskool Heroes (led by Transformers Rescue Bots) and Sesame Street products all grew in the quarter.
Cost Savings Initiative
As previously announced, Hasbro is undertaking a cost savings initiative designed to better align resources and costs while targeting $100 million in annual savings by 2015.
During the second quarter 2013, it incurred $2.5 million in pre-tax partial pension settlement charges, or $0.01 per diluted share, associated with this initiative. Potential additional pension settlement charges could be as much as $8 million dependent on the amount and type of benefit payments pension participants request during the remainder of 2013. Hasbro didn’t record any additional restructuring charges during the second quarter, but continues to expect full-year charges of $30 to $35 million, prior to pension charges. In the first quarter 2013, Hasbro recorded $28.9 million in restructuring charges.
The expectation for gross savings for 2013 continues to be $45 to $48 million, resulting in expected net savings of $13 to $15 million for the full-year, prior to pension charges.
Dividend and Share Repurchase
On May 23, 2013, Hasbro declared a quarterly cash dividend of $0.40 per common share. The dividend will be payable on August 15, 2013, to shareholders of record at the close of business on August 1, 2013. Year-to-date, Hasbro has paid $52.1 million in cash dividends to shareholders.
During the second quarter 2013, Hasbro repurchased a total of 771,211 shares of common stock at a total cost of $35.4 million and an average price of $45.82 per share. At quarter end, it had repurchased a total of 1.29 million shares of common stock year-to-date and $71.8 million remained available in the current share repurchase authorization.
Back to School Shopping Has Begun
The back-to-school shopping season has begun with 29 percent of households reporting that they are shopping, according to a special ICSC-Goldman Sachs consumer tracking survey. While the percentage of consumers shopping for back-to-school items at this time of the season is lower than in 2012 (33 percent), it is still higher than in all other years since 2004. However, two-thirds of households reported that August is when they will do most of their back-to-school shopping.
• Average household expenditure on all types of back-to-school items is expected to be about $285, an increase over last year.
• 45 percent plan to spend the same amount as last year, while only 17 percent indicated they would spend less.
• Of the 42 percent of consumers that plan to increase spending, nearly three-fifths indicated that the bulk of their shopping will be to replace wardrobes and school supplies.
“This year consumers plan to do considerably more of the [back-to-school] shopping at discount stores (90 percent vs. 83 percent in 2012) than anywhere else followed by office supply (44 percent) and traditional department stores (41 percent),” said Michael P. Niemira, ICSC vice-president of research and chief economist.
Hasbro, Disney Extend Deal
Hasbro, Inc., and The Walt Disney Company announced that they are expanding their strategic merchandising relationship for major Disney entertainment properties Marvel and Star Wars.
The Marvel amendment extends Hasbro’s global rights to Marvel characters for an additional two years running through 2020. Hasbro will continue to develop a wide range of toys and games for Marvel’s global Universe of more than 8,000 characters.
Following the acquisition of Lucasfilm by Disney, the two companies sought to align the terms of both the Marvel and Lucasfilm agreements. The Marvel extension is in line with the term for Hasbro’s rights for the Star Wars franchise, which also runs through 2020. Both agreements cover entertainment, including all film and television properties, for the respective franchises during the period and include similar product categories.
In accordance with the extended term of the Marvel agreement, Hasbro will guarantee an additional $80 million in royalties to Disney, with respect to Marvel-branded products, contingent on additional Marvel theatrical releases.
Additionally, in anticipation of the next three Star Wars sequel motion pictures, and the release of other potential Star Wars-related entertainment, which were not contemplated under the previous agreement, Hasbro will pay up to $225 million in guaranteed payments to Disney. The companies say that $75 million will be paid on signing and the remainder becomes due in accordance with the planned releases of the new Star Wars sequel films. Star Wars: Episode VII is currently planned for summer 2015 under the direction of J.J. Abrams.