Hasbro Reports Q3 Results
Hasbro reported financial results for the third quarter 2013. Net revenues for the third quarter increased 2 percent to $1.37 billion, compared to $1.35 billion in 2012. Third quarter net revenues include a favorable $3.8 million impact of foreign exchange.
As adjusted, net earnings for the third quarter 2013 increased 5 percent to $172.5 million, or $1.31 per diluted share, versus $164.9 million, or $1.24 per diluted share, in 2012. As reported, net earnings for the third quarter 2013 were $193 million, or $1.46 per diluted share. These include a favorable tax adjustment of $23.6 million, or $0.18 per diluted share, as well as pre-tax restructuring and partial pension settlement charges of $4.1 million, or $0.03 per diluted share, associated with Hasbro’s Cost Savings Initiative.
“Our brand initiatives for holiday 2013 are resonating with consumers and retailers globally as we enter the all-important fourth quarter,” said Brian Goldner, Hasbro’s president and CEO in a statement. “In addition to our innovative holiday launches, our expanded presence in faster growing geographies is delivering growth, including emerging markets growth of 22 percent in the third quarter. We’ve also streamlined our organization and focused on the opportunities within our franchise and partner brand portfolio, which offer the greatest long-term potential across our global brand blueprint. These strategic steps are increasingly important as we continue to operate in a challenging consumer environment in developed economies.”
Third Quarter Major Segment Performance
U.S. and Canada segment net revenues were $735.6 million compared to $774.5 million in 2012. The results reflect growth in the Girls category and a flat Games category offset by declines in the Boys and Preschool categories. The U.S. and Canada segment reported operating profit of $147 million compared to $154.2 million in 2012.
International segment net revenues increased 11 percent to $582.7 million compared to $524.1 million in 2012. Net revenues in the International segment include a favorable $5 million impact of foreign exchange. Revenues in Europe, Latin America, and Asia Pacific grew in the quarter, including 22 percent growth in emerging markets. Additionally, the Games, Girls, and Preschool categories were up in the third quarter. The International segment reported 24 percent operating profit growth to $105.7 million compared to $85.5 million in 2012.
Entertainment and Licensing segment net revenues increased 13 percent to $48.6 million compared to $43.1 million in 2012, primarily driven by higher entertainment revenues as well as the addition of Backflip Studios to the segment. The Entertainment and Licensing segment reported operating profit of $7.6 million compared to $10.7 million in 2012. Segment profitability was impacted by the acquisition of Backflip Studios in July 2013.
For the third quarter 2013, net revenues in the Boys category decreased 17 percent to $392 million. Transformers and Star Wars revenues grew in the quarter; however, several brands, including Marvel and Beyblade, continued to face difficult comparisons with 2012.
The Games category posted its fourth consecutive quarter of growth, increasing revenues 6 percent in the third quarter 2013 versus last year. Magic: The Gathering, Jenga, the Elefun & Friends collection, and the launch of the Telepods gaming platform, featuring the Angry Birds Star Wars II game, were among the brands posting higher revenues in the quarter.
The Girls category posted its fifth straight quarter of growth, increasing 29 percent in the third quarter. Furby, My Little Pony, including the highly successful launch of My Little Pony Equestria Girls, and the launch of Nerf Rebelle contributed to the continued growth in the Girls category.
The Preschool category declined 2 percent in the quarter despite growth in Play-Doh, Sesame Street, and Transformers Rescue Bots products.
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 third quarter 2013, the company incurred $4.1 million in pre-tax restructuring and partial pension settlement charges, or $0.03 per diluted share, associated with this initiative. Pre-tax restructuring charges in the quarter were $3 million and partial pension settlement charges were $1.1 million.
The company continues to expect full-year restructuring charges to be as much as $35 million, prior to pension charges. Year-to-date, the company recorded $32 million in restructuring charges.
Potential additional pension settlement charges could be $3 to $5 million dependent on the amount and type of benefit payments pension participants request during the remainder of 2013. Year-to-date, pre-tax pension settlement charges are $3.5 million.
The expectation for gross savings in 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
Year-to-date, the company has paid $104.2 million in cash dividends to shareholders, including $52 million in the third quarter. As announced on August 1, the next quarterly cash dividend of $0.40 per common share will be payable on November 15, 2013, to shareholders of record at the close of business on November 1, 2013.
Also announced on August 1, the board of directors authorized Hasbro to repurchase an additional $500 million of its common stock. During the third quarter 2013, the company repurchased a total of 643,559 shares of common stock at a total cost of $30 million and an average price of $46.62 per share. At quarter end, the company had repurchased a total of 1.93 million shares of common stock year-to-date and $541.8 million remained available in the current share repurchase authorizations.