Hasbro Earnings: Profitability Improves Materially After EOne Divestiture; Shares Remain Attractive

Now liberated from the eOne entertainment business, narrow-moat Hasbro’s profitability swung significantly higher. In the first quarter, Hasbro delivered adjusted operating margin of 19.6%, more than 1,500 basis points higher than last year, which was saddled with excess inventory markdowns. Cost savings from the firm’s $750 million reduction plan are coming faster than we anticipated, with savings from operating expenses contributing to more than half the improvement. Sales of $757 million were in line with our forecast, although Wizards of the Coast and digital (WOTC) sales were a touch better than we expected, up 7%, while consumer products were a bit weaker, down 21%, suffering from lower consumer demand and the out license of lower profitability brands. Working capital is much healthier, with inventory flat sequentially but down 53% year over year, as Hasbro cleans house in consumer products. We have long held that a refocus on core competencies would provide a positive step change in profitability, which is finally coming to fruition.