Hasbro (NASDAQ:HAS) is a company known for fun and games, but this toy and game maker has been undergoing a serious turnaround effort. In fact, these efforts are starting to pay off.
On Wednesday, Hasbro was one of the best-performing stocks on the market after delivering solid first-quarter results that topped estimates for both earnings and revenue. Shares surged 11% on Wednesday to $64 per share, bringing the stock’s year-to-date gain to 30%.
Here is a closer look at where Hasbro is going.
Turnaround plan paying off
Early last year, Hasbro laid out a plan to turn around its fortunes, as its stock price had returned -8.5% on an annualized basis over the last five years. The blueprint for success involved organizational changes, expense reductions, a streamlined focus on its bigger brands, gaming, digital, and building out its direct-to consumer and licensing businesses. The goal is to become more efficient and drive profitable growth.
Part of that was selling off the eOne film and television business. That divestiture hurt Hasbro’s top line in the first quarter as its revenue declined 24% year over year to $757 million. Even excluding that divestiture, the toymaker’s revenue fell 9%, dragged down by its consumer products division, which recorded a 21% revenue plunge. However, revenue surged higher in Hasbro’s digital gaming and entertainment segments.
All of the company’s efforts were part of an overall initiative to reduce expenses, which helped its bottom line. Hasbro cut its cost of expenses by 28% and its selling, general, and administrative costs by 26%. It also slashed its advertising and product development expenses.
In addition, Hasbro slashed its inventory in half, from $713 million last year to $336 million in Q1. Lower inventories generally allow companies to save on storage costs and focus on selling newer, more popular products.
The result was a huge spike in Hasbro’s operating profit to $116 million, up from just $18 million in the same quarter a year ago. It allowed the company to generate a profit of $58 million or 42 cents per share in the quarter, up from a 16-cent per-share net loss in the first quarter of 2023.
“We made solid progress in our turnaround efforts in the first quarter,” said Hasbro Chief Financial Officer Gina Goetter in the earnings report. “We landed revenue where we expected and drove significant operating profit improvement led by our operational excellence program and improved business mix. We remain on track for our full-year commitments.”
Is Hasbro a buy?
Hasbro certainly seems to be on the right track in streamlining and refocusing its business, but its revenue could remain challenged.
In its outlook for the full fiscal year, Hasbro sees its consumer products revenue tumbling by 7% to 12% and its digital gaming revenue off by 3% to 5% from the prior year. However, the operating margin in that segment is projected to be between 38% and 40%. Further, the entertainment segment is expected to see its revenue come in $15 million lower, although its adjusted operating margin is estimated at 60%.
However, Hasbro’s adjusted EBITDA is expected to be between $925 million and $1 billion for the full year, up from $704 million in fiscal 2023. Through 2025, the company is targeting $750 million in gross cost savings.
Overall, the stock still seems overvalued given the company’s revenue challenges and transformation. Trading at 35 times earnings, Hasbro seems a bit high to warrant a buy, but investors may want to keep an eye on it over the next few quarters as it seems to be heading in the right direction.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
