Leading toy and game maker Hasbro (HAS 1.43%) reported second-quarter 2019 results before the market open on Tuesday. Revenue grew nearly 9% -- 11% in constant currency -- and earnings per share adjusted for one-time items rocketed 63% year over year.
Like last quarter, revenue growth was driven by the company's new digital and esports initiative, Magic: The Gathering Arena, along with dependable staples Monopoly, Play-Doh, and Magic: The Gathering tabletop. Disney's (DIS 0.62%) Marvel franchises Avengers and Spider-Man also helped power growth.
With two consecutive quarters of year-over-year revenue and adjusted earnings per share growth now under its belt, Hasbro appears to have gotten its mojo back. Its results took a beating last year due to the fallout from the Toys R Us bankruptcy and liquidation.
Shares soared to a closing gain of 10% on Tuesday, likely due to revenue and earnings coming in much stronger than most investors were expecting. Hasbro stock has returned nearly 49% in 2019 through Tuesday, versus the S&P 500's 21.2% return.
Image source: Hasbro.
Hasbro's results: The raw numbers
| Metric | Q2 2019 Result | Q2 2018 Result | Year-Over-Year Change |
|---|---|---|---|
| Revenue | $984.5 million | $904.5 million | 8.8% |
| GAAP operating income | $128.3 million | $87.6 million | 47% |
| GAAP net income | $13.4 million | $60.3 million | (78%) |
| Adjusted net income | $99.3 million | $60.3 million | 65% |
| GAAP EPS | $0.11 | $0.48 | (77%) |
| Adjusted EPS | $0.78 | $0.48 | 63% |
Data source: Hasbro. GAAP = generally accepted accounting principles. EPS = earnings per share.
Revenue growth continues to be restrained by a strong U.S. dollar. Absent the negative $20.7 million impact of foreign exchange, revenue rose 11% year over year. Adjusted net income and EPS exclude a $85.9 million, or $0.68 per share, after-tax charge for the settlement of the company’s U.S. pension plan liability.
For context -- though long-term investors shouldn't give too much importance to Wall Street's near-term estimates -- analysts were looking for adjusted EPS of $0.50 on revenue of $956.8 million. So, Hasbro sailed by both expectations.
What happened with Hasbro in the quarter?
- Franchise brands revenue climbed 14% year over year to $576.7 million, partner brands revenue increased 3% to $213.4 million, Hasbro gaming revenue declined 8% to $123.4 million, and emerging-brands revenue soared 28% to $71 million. Partner brand revenue is driven by movie releases, so it will be "lumpy" from quarter to quarter.
- U.S. and Canada segment revenue jumped 14% year over year to $510.5 million; international revenue slipped 1% (but rose 5% in constant currency) to $377.4 million; and entertainment, licensing, and digital revenue surged 28% to $96.5 million.
- Within international, revenue in Europe inched up 1% as reported, but grew 6% in constant currency. This result follows last quarter's 8% constant currency growth and suggests that Hasbro is back on track in this region after struggling last year due to what management termed a "rapidly evolving retail landscape."
What management had to say
Here's what CEO Brian Goldner had to say in the press release:
We delivered a high-quality second quarter, with positive consumer trends at retail and profitable growth led by several geographies and brand categories. Our investments are differentiating Hasbro’s portfolio and delivering profitable revenue streams, including continued MAGIC: THE GATHERING revenue growth in tabletop and digital. We grew revenues in the U.S. and Europe, and we believe we are well-positioned to deliver against our target of profitable growth for the full-year 2019.
Looking ahead
Hasbro appears to have left its Toys R Us woes behind. Along with revenue back in growth mode, its results have also been getting a boost from its cost-savings initiative. It's "on track to deliver approximately $50 million in net savings this year," CFO Deborah Thomas said in the earnings release. While the company doesn't provide guidance, Goldner reiterated that management expects profitable growth for the full year.
Thomas added that Hasbro is "well positioned for the holiday season with major brand initiatives across categories, including The Walt Disney Animation Studios' Frozen 2 and [Disney's] Lucas Films' Star Wars: The Rise of Skywalker," which are slated to be released in November and December, respectively.
