Hasbro Reports Q1
Hasbro, Inc., reported financial results for the first quarter 2015. Net revenues for the first quarter 2015 increased 5 percent to $713.5 million versus $679.5 million in 2014. Revenues increased 14 percent, excluding a negative $62.6 million impact from foreign exchange.
Net earnings for the first quarter 2015 were $26.7 million, or $0.21 per diluted share, compared to $32.1 million, or $0.24 per diluted share, in 2014. Net earnings for the first quarter 2015 increased 43 percent versus adjusted net earnings of $18.6 million, or $0.14 per diluted share, in 2014. As reported, first quarter 2014 net earnings included favorable tax adjustments of $13.5 million or $0.10 per diluted share.
“2015 is off to a good start with continued momentum in our business, led by growth in all of our franchise brands and the underlying strength in demand across international markets, including the emerging markets,” said Brian Goldner, Hasbro’s president and CEO. “For the first quarter, we grew revenue, improved profitability, and delivered growth in adjusted net earnings despite significant foreign exchange headwinds. While the first quarter is the least significant quarter of the year, the global Hasbro team delivered a strong start to the year.”
First Quarter Major Segment Performance
U.S. and Canada Segment net revenues increased 2 percent to $345.7 million compared to $337.7 million in 2014. The Segment’s results reflect growth in the Boys, Games, and Preschool categories, partially offset by a decline in the Girls category. The U.S. and Canada Segment reported 16 percent operating profit growth to $41.4 million compared to $35.8 million in 2014.
International Segment net revenues were $305.7 million compared to $305.5 million in 2014. Revenues in the Boys and Preschool categories increased but were offset by declines in the Games and Girls categories. On a regional basis, growth in Asia Pacific and Latin America was offset by a decline in Europe. The emerging markets increased revenues 3 percent in the quarter. Excluding an unfavorable $61 million impact of foreign exchange, primarily in Europe, net revenues in the International Segment grew 20 percent and approximately 25 percent in the emerging markets. The International Segment reported operating profit of $1.9 million compared to $2.4 million in 2014.
Entertainment and Licensing Segment net revenues increased 74 percent to $60.6 million compared to $34.9 million in 2014. Segment performance was driven by licensing revenues for Franchise Brands, in particular My Little Pony and Transformers, during the 2014 holiday period and a multi-year digital streaming deal for Hasbro Studios television programming. The Entertainment and Licensing Segment reported 174 percent operating profit growth to $16.4 million compared to $6 million in 2014.
First Quarter Product Category Performance
First quarter 2015 net revenues in the Boys category increased 10 percent to $272.6 million. This growth was driven by year-over-year revenue gains in Franchise Brands Transformers and Nerf, as well as from growth in Marvel products and initial shipments of Jurassic World
Games category revenues increased 7 percent in the quarter. Franchise Brands Magic: The Gathering and Monopoly increased revenues in the quarter and were partially offset by declines in several other brands, including Angry Birds games.
The Girls category revenues declined 16 percent in the first quarter 2015, primarily due to declines in Furby, Furreal Friends, and Easy Bake products. Growth in Littlest Pet Shop and Play-Doh DohVinci products partially offset these declines.
Preschool category revenues increased 22 percent in the first quarter 2015. The Play-Doh brand and Playskool Heroes products, fueled by growth in Transformers Rescue Bots and initial shipments of Jurassic World, continued to be strong performers in the category and more than offset declines in core Playskool products.
Dividend and Share Repurchase
Hasbro paid $53.5 million in cash dividends to shareholders during the first quarter 2015. The next quarterly cash dividend payment of $0.46 per common share is scheduled for May 15, 2015, to shareholders of record at the close of business on May 1, 2015.
During the first quarter, Hasbro repurchased approximately 436,000 shares of common stock at a total cost of $25.2 million and an average price of $57.80 per share. At quarter-end, $539 million remained available in the current share repurchase authorization.
Mattel Reports Q1
For the first quarter of 2015, Mattel, Inc., reported constant currency revenue growth of 5 percent, adjusted operating loss of $14.6 million, and adjusted loss per share of $0.08.
“In the first quarter, we took a number of steps to implement a rapid turnaround at Mattel,” said Christopher Sinclair, Mattel chairman and CEO. “We are already benefitting from better decision-making, alignment, and enhanced accountability. And we’ve begun to refocus our culture on creativity, innovation, and improving our speed to market. While we still have a lot of work to do, we’re starting to see progress with our core brands like Barbie and Fisher-Price, and I am confident we are making the changes necessary to perform better in the future.”
Financial Overview
For the quarter, net sales were up 5 percent in constant currency compared to last year. On a regional basis, first quarter gross sales increased 9 percent in constant currency, and 8 percent as reported, in the North American Region, which consists of the United States, Canada, and American Girl. For the International Region, gross sales increased 2 percent in constant currency, and decreased 14 percent as reported. Gross margin decreased 210 basis points of net sales, partially due to the acquisition of MEGA Brands. Adjusted other selling and administrative expenses increased 90 basis points of net sales, and 300 basis points as reported. Adjusted operating loss for the quarter was $14.6 million, compared to prior year’s adjusted operating income of $27.7 million. Mattel’s debt-to-total capital ratio as of March 31, 2015, was 44.1 percent. Cash flows used for operating activities were approximately $53 million, compared to approximately $61 million of cash flows from operating activities in 2014. Cash flows used for investing activities were approximately $92 million, an increase of approximately $62 million, compared to approximately $30 million in 2014. Cash flows used for financing activities and other were approximately $144 million, compared to approximately $173 million in 2014.
Capital Deployment
The board of directors declared a second quarter cash dividend of $0.38 per share, which is flat compared to the second quarter of 2014. The dividend will be payable on June 12, 2015, to stockholders of record on May 22, 2015.
Sales by Brand
Mattel Girls and Boys Brands
For the first quarter, worldwide gross sales for Mattel Girls and Boys Brands were $605.2 million, up 1 percent in constant currency versus the prior year. Worldwide gross sales for the Barbie brand were down 5 percent in constant currency. In the quarter, retail sales for Barbie were up on a global basis driven by a strong performance in the United States, partially offset by a decline in international markets. Worldwide gross sales for Other Girls brands were down 1 percent in constant currency. Worldwide gross sales for the Wheels category, which includes the Hot Wheels and Matchbox brands, were up 10 percent in constant currency. Worldwide gross sales for the Entertainment business, which includes Radica and Games, were up 4 percent in constant currency.
Fisher-Price Brands
First quarter worldwide gross sales for Fisher-Price Brands, which includes the Fisher-Price Core, Fisher-Price Friends, and Power Wheels brands, were $264 million, up 3 percent in constant currency versus the prior year.
American Girl Brands
First quarter gross sales for American Girl Brands, which offers American Girl-branded products directly to consumers, were $106.1 million, flat versus the prior year in constant currency.
Construction and Arts & Crafts Brands
First quarter gross sales for Construction and Arts & Crafts Brands, which includes the MEGA Bloks and RoseArt brands, were $38.3 million. Mattel acquired MEGA Brands, Inc., on April 30, 2014.
Jakks Reports Q1
Jakks Pacific, Inc., reported results for the company’s first quarter ended March 31, 2015. Net sales for the first quarter of 2015 increased 38 percent to $114.2 million, compared to $82.5 million reported in the comparable period in 2014. The reported net loss for the first quarter was $7.6 million, or $0.40 per diluted share. This compares to a net loss of $16.3 million, or $0.74 per diluted share, reported in the comparable period in 2014. Adjusted EBITDA for the first quarter of 2015 improved to negative $0.9 million, compared with negative EBITDA of $11.6 million in the first quarter of 2014.
“We are very pleased with the solid first quarter performance for Jakks, which built on our strong 2014, and we are working hard to continue the momentum through the year,” said Stephen Berman, president and CEO, Jakks Pacific, Inc. “Our strong performance in the quarter is the result of our ability to quickly identify and react to retail opportunities, our continued focus on implementing operational efficiencies, and our compelling product lines.”
Working Capital
As of March 31, 2015, the company’s working capital was $234.2 million, including cash and equivalents and marketable securities of $105.3 million, compared to working capital of $120.4 million, including cash and equivalents and marketable securities of $113.6 million as of March 31, 2014. In response to customer demand and as a contingency measure to better deal with issues in the port of Los Angeles, on-hand inventory levels increased to $79.5 million at the end of the first quarter in 2015 from $42.2 million at the end of the first quarter of 2014.
2015 Guidance
Jakks affirmed its previously issued guidance for the full year of 2015, which estimated net sales in the range of approximately $730 million to $740 million, earnings in the range of approximately $0.71 to $0.75 per diluted share and adjusted EBITDA in the range of approximately $56 million to $58 million.
TIA Supports Coalition Efforts to Keep Safe Toys in Albany County
The Toy Industry Association (TIA) voiced its support of a lawsuit filed in Albany County, New York against the passage of a law that would make it illegal to sell most children’s toys in the county. The complaint was filed in Federal District Court by the “Safe to Play Coalition,” an alliance representing hundreds of small U.S.-based sellers of toys and children’s products that meet stringent U.S. safety standards.
The Coalition’s lawsuit alleges that Albany County Local Law No. J is unnecessary, ineffective, and illegal, because it bans and criminalizes the sale of toys and children’s products that otherwise meet federal safety laws under the Federal Hazardous Substances Act (FHSA) and the Consumer Product Safety Act (CPSA), and violates the Supremacy Clause of the United States Constitution. The Coalition’s lawsuit reaffirms the safety of toys sold in the county—and across the country—and asks for the law to be declared unconstitutional.
“Our industry creates laughter, expands imagination, and makes memories. And our complete commitment to the safety of our products is demonstrated by the extensive measures employed by toy companies to comply with federal safety requirements,” said TIA president and CEO Carter Keithley. “When your ultimate consumers are children, the standards are high. We understand this better than anyone, and it is not an overstatement to say that our industry has become the gold standard for safety.”
Consistently ranked among the safest consumer products, toys are required to meet more than 100 different tests and standards before they are placed on store shelves, says the TIA. At least six federal laws are already in place to ensure that toys are safe. The industry is actively engaged in the regulatory process of not only maintaining safety but also advancing it.
“We have always endorsed strict U.S. regulations and continually partner with physicians, scientists, government officials, and consumer groups who can help us meaningfully reinforce the safety of toys,” Keithley said. “Local Law J, however, does nothing to increase product safety—it only hurts consumers as well as small businesses.”
In addition to preventing parents in Albany County from buying the same safe toys and products for their children that are available elsewhere in the country, Local Law J would have a significant economic impact on the community’s small businesses. In the capital region, dozens of companies associated with the toy industry could be negatively affected through a loss of revenue and possibly even jobs, says the TIA. The TIA also says that it remains to be seen how the law might affect local sports leagues and after-school programs.
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