Hasbro Makes a Year’s Worth of Digital Transformation and Is Ready for the 2020s

Hasbro (HAS +0.88%) put the final wrap on 2019, closing out a year's worth of investing in digital capabilities to set itself up for the next decade.

Of note was the toy-making giant's $3.8 billion acquisition of Peppa Pig and PJ Masks producer Entertainment One (eOne), which was completed just before the start of the new year. The numbers from its fourth-quarter earnings released Tuesday were decent enough, if not falling slightly on the "disappointing" end of the spectrum, but Hasbro is all about the future of playtime -- and that future looks promising.  

Peppa Pig. Image source: Entertainment One.

2019 earnings by the numbers

Hasbro's sales during the busy holiday shopping season increased 3% from 2018. Results once again got a boost from the "partner brands" segment -- most notably Disney (DIS +1.95%) and sales related to the fourth quarter theatrical release of Frozen 2 and Star Wars: The Rise of Skywalker.

Earnings per share jumped to $2.01 from just $0.07 during the holidays a year ago. However, results were affected by the closure of Toys R Us in 2018 and Hasbro's investment in new e-commerce distribution channels, and by financing for the eOne takeover in 2019.  

Adding the fourth-quarter numbers to the rest of the year and adjusting for one-time non-recurring items, Hasbro did pretty well considering all of the changes it has been working through.

Pp = percentage point. Data source: Hasbro.  

One area of disappointment was top-line growth, especially considering the company has been lapping results that include the loss of its former retail partner Toys R Us.

Foreign currency exchange rates bogged down sales and profits, though. Excluding $78.5 million in exchange rate losses this year, sales would have increased 5%. Some of the company's own franchises also lagged behind, offset by a 24% increase in partner brand sales to $1.22 billion for full-year 2019.  

Disney and the other toy-making partnerships Hasbro has struck should continue to be a key area of business to watch. However, eOne now being part of the fold is a significant development. Royalty fees paid out to the likes of Disney surged 40% higher to $156 million in the fourth quarter alone (and up 18% to $415 million for the full-year), and Hasbro should be able to imitate some of that brand licensing success Disney has had in the years ahead.

Creating some blockbusters of its own

Shareholders will start seeing revenue inclusion numbers from eOne starting with the first quarter 2020 report. Hasbro doesn't provide guidance, so what those numbers ultimately look like remains to be seen.

However, though Hasbro ponied up to purchase the U.K.-based company (eOne's last quarterly filing from the three months ended June 30, 2019, showed revenues of 173 million British pounds, a 7% year-over-year decline), eOne should do quite a bit to transform the newly combined company overall.  

Besides getting access to children's TV hits Peppa Pig, PJ Masks, and others, Hasbro is getting a production studio. The toy manufacturer has had past success turning its Transformer toy franchise into blockbuster movies, with other brands like G.I. Joe having more limited success; and work is ongoing creating a TV series based on its Magic: The Gathering card game.

If Hasbro can consistently create a stream of TV and movie revenues and licensing fees based on its other franchises, it should do wonders to drive growth for the next decade ahead. 

In today's digital world, it's all about creating experiences across multiple mediums -- toys, TV, video games, and a presence at parks (PJ Masks is coming to an aquarium near you) -- and Hasbro has a plan to capitalize on a changing consumer.

Look for more details from management in the quarters ahead, as eOne integration with the rest of Hasbro gets underway.