Hasbro Posts Q1 Loss on eOne Acquisition Expenses

Hasbro has reported its financial results for the first quarter of 2020, which saw a net loss of $69.6 million from acquisition-related expenses for Entertainment One (eOne), and the company provided a business update on COVID-19-related matters.

“The first quarter highlights what truly differentiates Hasbro: A global team that meets challenges creatively and nimbly; a diverse brand portfolio and retailer base, including best in class ecomm and omni-channel execution; a strong financial foundation and balance sheet; and a commitment to our purpose of making the world a better place for children and their families,” said Brian Goldner, Hasbro’s chairman and CEO. “During the quarter, families and friends connected through Hasbro’s robust portfolio of face-to-face games, created with PLAY-DOH and engaged in content and imaginative play with our brands and entertainment properties. Our teams worked tirelessly to ensure product could get to consumers while managing the health and safety of our employees and partners globally who are navigating a global supply chain and retail landscape impacted by COVID-19. Point of sale at retail was strong during the first quarter and continues to be up in April.”

“We’ve undertaken extensive scenario planning across the business and geographies as we plan for a re-opening of the economies globally,” continued Goldner. “At the same time, we made significant progress on the integration of eOne and while near term much of the team’s production work has been delayed due to COVID-19, we are actively working together to unlock value from our brands and the eOne enterprise. Hasbro is creating play and entertainment experiences which are vital and desired by consumers and audiences this year and for the years to come.”

Net revenues for Q1 were $1.11 billion versus $1.2 billion pro forma revenues in 2019, impacted by foreign exchange.

First-quarter net loss included $127.5 million after tax of acquisition-related expenses and $19.9 million after tax of purchased intangible amortization associated with the eOne acquisition. Excluding these items, adjusted net earnings for the first quarter were $77.7 million. The company said that the “integration is progressing well” and remains on track to deliver planned synergies of $130 million by the end of 2022.

As for the impact of COVID-19 on the business, third-party factories in China represent approximately 55 percent of Hasbro’s manufacturing production. “After operating at lower than planned production levels during the first quarter due to COVID-19, these factories are currently operating at planned capacity for this time of year,” the company said. “China factories are making product across the business, including games. As production typically builds to peak levels during the summer months, the company anticipates making up production lost in the first quarter in the second quarter and to be well positioned to meet holiday demand. These beliefs assume all production continues to operate in all material respects without further COVID-19 shutdowns.” Manufacturing and warehouse partners outside of China operated at close to normal levels during much of the first quarter. “The global Hasbro team is utilizing its diverse global supply chain to meet demand from open facilities, existing inventory and to rapidly make up lost production. The COVID-19 situation is very fluid and based on our understanding of local governments directions at this time, we expect closed facilities to reopen over the summer. We will be using our full complement of sourcing partners globally to ensure a quick recapture of any lost production on priority items.”

“Hasbro is operating from a solid financial position with substantial liquidity available in both cash on hand and a revolving credit facility,” said Deborah Thomas, Hasbro’s chief financial officer. “Upon closing the eOne acquisition, we drew down on a $1 billion term loan and left our cash on the balance sheet intact. This cash position increased to $1.2 billion at quarter end, and is further supported by access to a $1.5 billion revolving credit facility. The global team did a tremendous job navigating the challenges of the first quarter. Toward the end of the quarter, physical store closures and country-wide restrictions became more prevalent and entertainment productions shut down. As a result of COVID-19, we expect the second quarter to be more challenging than the first quarter of the year with revenues and earnings down versus pro forma 2019. We are taking prudent steps to lower expenses and preserve capital while positioning to meet the seasonal peak demand periods of the business in the second half of the year, including the holiday season. While the ultimate impact of COVID-19 will vary depending on how long it takes to reopen markets around the world, we are currently seeing healthy demand for our products and content.”