Diversified Hasbro Widens Margins And Guides Favorably
Hasbro (NASDAQ:HAS) is not immune to the issues plaguing the market today but it is outperforming what we’ve seen so far this earnings cycle and in more ways than one. The key takeaways from the report are that revenue is growing, the company has pricing power, and margins are widening. In this context, the stock should be a top choice for investors but there is more to this story than margin. Hasbro is a high-quality dividend payer as well and one that yields nearly 3.5% compared to the roughly 1.6% paid by the average S&P 500 company. If you’re looking for a place to park some money for the 2nd half there aren’t many better choices than this.
"We are making significant progress in our strategic plan review and are identifying and realizing cost savings across the business," said CEO Chris Cocks. "Our teams are driving focus and scale in gaming, multi-generational brands and direct to consumer. Backed by Hasbro's unmatched portfolio of brands and brand-building capabilities, we have confidence in the strength of our initiatives for the second half and we are positioned to deliver profitable growth and long-term shareholder returns."
Hasbro delivered mixed results for the 2nd quarter but take that with a grain of salt. The $1.34 billion in revenue missed the Marketbeat.com consensus estimate by 220 basis points but is up versus last year. The company’s revenue is up 1.5% versus last year and up double-digits versus two and three years ago despite the divestiture of the music business last year. Growth was led by a 7% gain in the Consumer Products segments and bolstered by a 3% gain in Wizards of the Coast. The Entertainment declined by 18% including the loss of the music business but fell a smaller 4% on an adjusted basis.
Moving on to the margin, the company was able to widen its margin on the combined effects of pricing and internal cost-saving efforts that are still underway. The GAAP and adjusted operating margin both improved, adjusted by 200 basis points, and that led to a better than 100% increase in net earnings. The adjusted earnings grew by a smaller 10%, however, but beat the Marketbeat.com consensus by $0.21 or nearly 25% and that is not the end of the good news. The company is expecting to see low single-digit revenue growth in 2022 with mid-single-digit growth in the operating profit, both of which compare favorably to the consensus.
Hasbro has been working on reducing its debt and is on track to meet the 2.0X to 2.5X target ahead of the late 2023 target date. This is on top of increasing its inventory in preparation for the fall season and repurchasing shares in the amount of $124 million during the quarter. The repurchase is worth about 1.15 of the current market cap and leaves about $240 million worth of shares to be purchased under the current authorization.
The Technical Outlook: Hasbro Show Support At Key Level
Shares of Hasbro moved down to set a new low in the wake of the report but that low was snatched up by bargain-hungry investors. Price action is now up more than 2.0% and showing increased signs of support at the current levels. Assuming the market follows through on this move, we see shares of Hasbro moving up within the current range and retesting the highs near $110 by late 2022 or early 2023.
Article by Thomas Hughes, MarketBeat