Sesame, ToyTalk Enter Research Partnership
Sesame Workshop and ToyTalk have signed a two-year research partnership agreement to explore the potential for conversation between children and the characters they love, to advance literacy learning among preschool-aged children. The research is designed to address questions of interest to both parties, and to develop best practices that will inform a variety of future products and services.
The partners will utilize ToyTalk’s proprietary PullString Technology, an authoring environment for building speech-driven games and stories with interactive characters. The two organizations are investigating how speech recognition can be a powerful tool for learning, engagement and social development.
New Toy Company Launches in North America
China-based Guangdong Alpha Animation and Culture Company Ltd, one of the world’s largest developers of animation and toys, has announced the creation of Auldey Toys North America and the launch of its new headquarters in Boston, Mass.
The creation of the Auldey Toys subsidiary comes as the company prepares for 2015, surrounding new product innovation in its established boys, R/C, and vehicles lines.
In addition to new products, Auldey Toys will launch its first North American preschool animated program Super Wings, which will begin airing in 2015.
Industry veteran Adrian Roche has been appointed as the company president. Roche joins Auldey Toys after eight years as vice-president of brands at MEGA Brands and previously vice-president at The First Years (TOMY).
Auldey Toys North America has also retained ChizComm, Ltd. as its marketing agency of record.
Mattel Reports Q3 Results
Mattel reported 2014 third quarter financial results. For the quarter, the company reported a net income of $331.8 million, or $0.97 per share, which includes a negative impact of $0.05 per share from MEGA Brands integration costs and a tax benefit of $0.04 per share, compared to last year’s third quarter net income of $422.8 million, or $1.21 per share, which included a tax benefit of $0.05 per share.
“While third quarter results did not meet our expectations, they do reflect progress toward achieving our goal to end the year with improved POS momentum and reduced inventory levels,” said Bryan G. Stockton, Chairman and CEO of Mattel. “Global POS was positive in the quarter, and inventories at retail, both in the U.S. and in international markets, were lower. Clearly we have work to do as we enter the fourth quarter, and we remain focused on executing during the all-important holiday season and beyond.”
Financial Overview
For the quarter, net sales were $2.02 billion, down eight percent compared to $2.21 billion last year. On a regional basis, third quarter gross sales decreased seven percent in the North American region, which consists of the U.S., Canada, and American Girl, with no impact from changes in currency exchange rates. For the international region, gross sales decreased seven percent including an unfavorable impact of currency exchange rates of one percentage point. Operating income for the quarter was $409.5 million, compared to prior year’s operating income for the quarter of $528.2 million. Mattel’s debt-to-total capital ratio as of September 30, 2014 was 41.2 percent.
Cash flows used for operating activities were approximately $144 million, compared to approximately $321 million in 2013, driven by lower working capital usage. Cash flows used for investing activities were approximately $604 million, an increase of approximately $428 million, driven by the acquisition of MEGA Brands. Cash flows used for financing activities and other were approximately $29 million, compared to approximately $432 million in 2013. The change was primarily due to lower repayments of long-term debt and lower share repurchases, partially offset by lower proceeds from stock option exercises.
Capital Deployment
The company announced that its board of directors declared a fourth quarter cash dividend of $0.38 per share on the company’s common stock. The dividend will be payable on December 12, 2014 to stockholders of record on November 26, 2014. The dividend is the final of four quarterly dividends the company will have paid this year, reflecting an annualized dividend of $1.52 per share, which represents a six percent increase to last year’s total dividends.
Sales by Brand
Mattel Girls and Boys Brands
For the third quarter, worldwide gross sales for Mattel Girls and Boys Brands were $1.32 billion, down 11 percent versus the prior year. Worldwide gross sales for the Barbie brand were down 21 percent. Worldwide gross sales for other girls brands were up one percent, primarily due to Disney Princess and Ever After High, partially offset by Monster High. Worldwide gross sales for the wheels category, which includes Hot Wheels and Matchbox brands, were up four percent. Worldwide gross sales for the entertainment business, which includes Radica Games and Mattel Games, were down 23 percent.
Fisher-Price Brands
Third quarter worldwide gross sales for Fisher-Price Brands, which includes the Fisher-Price core, Fisher-Price Friends, and Power Wheels brands, were $663.4 million, down 16 percent versus the prior year.
American Girl Brands
Third quarter gross sales for American Girl Brands, which offers American Girl-branded products directly to consumers, were $113.3 million, down seven percent versus the prior year.
Construction and Arts & Crafts Brands
Third quarter gross sales for construction and arts & crafts brands, which includes the MEGA Bloks and RoseArt brands, were $123.4 million. Mattel acquired MEGA Brands, Inc., on April 30, 2014.
Hasbro Reports Q3 Results; Discusses HUB Network Joint Venture
Hasbro reported its financial results for the third quarter 2014. Net revenues for the third quarter 2014 increased seven percent to $1.47 billion compared to $1.37 billion in 2013. Foreign exchange had an unfavorable $10.8 million impact on third quarter revenues.
As reported, net earnings for the third quarter 2014 were $180.5 million, or $1.40 per diluted share, compared to $126.6 million, or $0.96 per diluted share, in 2013. Adjusted net earnings for the third quarter 2014 were $187.8 million, or $1.46 per diluted share, excluding a pre-tax charge of $11.6 million, or $0.06 per diluted share, related to the restructuring of the company’s investment in the Hub Network joint venture.
In 2013, as reported net earnings for the third quarter included a pre-tax $75.5 million, or $0.50 per diluted share, charge related to an adverse arbitration award; pre-tax $4.1 million, or $0.03 per diluted share, of restructuring and partial pension settlement charges; and a $23.6 million, or $0.18 per diluted share, favorable tax adjustment. Excluding these items, adjusted net earnings for the third quarter 2013 were $172.5 million, or $1.31 per diluted share.
“Our third quarter results continued to reflect the momentum we are building in our franchise brands and key partner brands, the positive results of our investments globally and the benefits of leading with compelling content and storytelling,” said Brian Goldner, Hasbro’s president and CEO. “In the third quarter, we grew revenues across all operating segments, delivered improved profitability, and took strategic steps to grow our brand portfolio and content delivery over the longer term, including forming a new strategic merchandising relationship with Disney Consumer Products for the globally popular Disney Princess and Frozen properties.”
Financial Overview
U.S. and Canada segment net revenues increased four percent to $764.3 million compared to $735.6 million in 2013. The segment’s results reflect growth in the boys and games categories, partially offset by a decline in the girls and preschool categories. The U.S. and Canada segment reported operating profit growth of 16 percent to $169.9 million versus $147.0 million in 2013.
International segment net revenues increased 11 percent to $649.3 million compared to $582.7 million in 2013. Revenues grew 13 percent, excluding a negative $9.7 million impact from foreign exchange. Revenues in the international segment reflect seven percent growth in Europe, 24 percent growth in Latin America, and 11 percent growth in the Asia Pacific region as well as growth in the boys, girls, and preschool categories, partially offset by a decline in the games category. In total, emerging markets revenues increased 29 percent. The international segment reported operating profit of $116.5 million, up 10 percent versus $105.7 million in 2013.
Entertainment and Licensing segment net revenues increased 10 percent to $53.4 million compared to $48.6 million in 2013. The segment benefited from growth in lifestyle licensing. The Entertainment and Licensing segment reported operating profit of $0.5 million compared to $7.6 million in 2013, primarily due to the impact of the acceleration of certain programming amortization costs.
Boys category revenues increased 22 percent to $478.5 million in Q3 2014, driven by growth in Nerf, Transformers, Marvel, and Star Wars products.
Games category revenues increased two percent in Q3 to $395.2 million. Franchise Brands Magic: The Gathering and Monopoly grew in Q3, as did Simon Swipe and Operation. These gains were partially offset by declines in several brands, including Telepods featuring the Angry Birds Star Wars II game, Jenga, Bop-It, and Duelmasters.
The girls category grew five percent in Q3 2014 to $407.7 million. Growth in My Little Pony, My Little Pony Equestria Girls, Nerf Rebelle, Furreal Friends, Littlest Pet Shop, and the introduction of Play-Doh DohVinci helped fuel continued growth in the category. Declines in Furby partially offset these revenue gains.
Preschool category revenues decreased seven percent to $188.5 million in Q3 2014. Play-Doh and Transformers Rescue Bots revenues continued to grow but were more than offset by declines in other preschool initiatives, including core Playskool and Sesame Street products.
Dividend and Share Repurchase
The company paid $54.7 million in cash dividends to shareholders during the third quarter 2014 and $162.8 million in the first nine months of 2014. The next quarterly cash dividend payment of $0.43 per common share is payable on November 17, 2014 to shareholders of record at the close of business on November 3, 2014.
During the third quarter, Hasbro repurchased a total of 2.4 million shares of common stock at a total cost of $124.5 million and an average price of $52.56 per share. Through the first nine months of 2014, the Company repurchased 6.4 million shares of common stock at a total cost of $341.3 million and an average price of $53.57 per share. At quarter-end, $183.6 million remained available in the current share repurchase authorization.
Hub Network Joint Venture
On September 25, Hasbro and Discovery Communications announced Hub Network would become Discovery Family Channel effective October 13, 2014. The network will broaden its programming focus to serve families in primetime and continue to showcase Hasbro Studios award-winning children’s content in daytime.
As a result of restructuring the company’s investment in the Hub Network joint venture, Hasbro recorded a pre-tax charge of $11.6 million, or $0.06 per diluted share, in the third quarter 2014. This net charge is primarily related to the costs associated with recording the fair value of a put/call option exercisable at the end of 2021 that the Company and Discovery entered into related to this transaction.