Toy maker Hasbro (NASDAQ:HAS) turned in its final report card for 2020, capping off a challenging year with a solid showing. Year over year, revenue and net earnings increased 4% and 10% respectively during the busy holiday shopping season, partially dragged down by lower partner brand sales (read Disney (NYSE:DIS)).
Hasbro will begin lapping initial effects of the pandemic in the coming months, though, and its TV and filmed entertainment segment (formed via acquisition of Entertainment One) could provide an especially strong boost to financial results in 2021. Hasbro stock isn't the steal it was last spring, but there could be some fuel left in its tank this year.
IMAGE SOURCE: GETTY IMAGES.
The return of TV and film production
2020 was a mixed bag for Hasbro. The pandemic helped the company make its transition to e-commerce in a big way as consumer activity online boomed. (Remember, Toys R Us, which had been the company's largest distributor, went bankrupt a few years ago.) Digital sales increased 43% in the year and topped $1 billion. The gaming segment (which includes video games) posted solid expansion thanks to bored households stuck at home.
And though partner brand sales were down overall (Disney's Frozen 2 was a big deal in 2019), the company said Star Wars toys increased 70% even though, for the first time since 2014, no new sci-fi epic hit theaters this year. Chalk the increase up to the sale of "The Child" (aka Baby Yoda or Grogu) toys of The Mandalorian fame.
In all, Hasbro posted a total revenue decline of 8% in 2020, although free cash flow increased 64% to $850 million (when acquisition costs associated with the eOne takeover are excluded).
2019 (Including Results From Entertainment One)
|Franchise brands||$2.29 billion||$2.41 billion||(5%)|
|Partner brands||$1.08 billion||$1.22 billion||(12%)|
|Hasbro gaming||$815 million||$710 million||15%|
|Emerging brands||$480 million||$579 million||(17%)|
|TV/film entertainment||$805 million||$1.02 billion||(21%)|
|Total||$5.47 billion||$5.93 billion||(8%)|
DATA SOURCE: HASBRO.
But let's turn our attention to the struggling TV and film segment, now including eOne -- whose most famous assets are preschooler franchises Peppa Pig and PJ Masks, and which handled distribution of the film 1917 in the U.K. and Ireland. With the pandemic came a temporary shutdown of production, and thus a reduction in revenue, with shows and films getting delayed. However, the segment notched a 20% rebound in Q4 as Hasbro was able to complete some projects and monetize them via its TV partners. This area should continue to rebound throughout 2021 and has an easy year-over-year lap time to beat as the new in-house production studio gets rolling again.
Deepening consumer engagement with its brands
Its first year as part of the Hasbro family didn't go so well for eOne, but 2021 will be the year the combined forces of the two companies will be unleashed. Hasbro CEO Brian Goldner said on the last earnings call that Hasbro will be launching a new line of Peppa Pig and PJ Masks toys in 2021. And eOne will begin reimagining popular Hasbro franchises. My Little Pony is getting a TV show reboot, for example. Goldner said more upcoming projects will be announced at the company's investor day on February 25.
What does this mean for Hasbro? Beyond its rebound story, the plan is for the company to unlock additional value from its toy franchises -- and do the same for eOne's kids shows with new toys and games. This is a new vertical for the company, giving it the ability to interact with the consumer via TV programs and movies in ways it couldn't in the past. For instance, the Transformers movies were licensed out based on Hasbro's ownership of the toy franchise. Going forward, it will be able to make shows and films directly with its portfolio. This is no Disney, but a vertically integrated entertainment business like this has nonetheless worked wonders for the Magic Kingdom.
Granted, Hasbro's results have been lackluster in recent years. It's just now getting up to speed selling merchandise digitally, and the eOne acquisition wasn't exactly timely given the events that unfolded last year. At 33 times trailing-12-month free cash flow, shares aren't a value the way they were at the start of the pandemic last year. But if Hasbro's TV and film segment can post a solid rebound and start contributing to the bottom line, shares could have room to run higher this year.
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