Hasbro stock makes serious gains
Hasbro (NASDAQ:HAS) is a company known for fun and games, but the toy and game maker has been working on a serious turnaround. 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 beat estimates for both revenue and revenue. Shares jumped 11% on Wednesday to $64 per share, bringing the stock’s year-to-date gain to 30%.
Let’s take a closer look at where Hasbro is going.
A turnaround plan that pays off
Early last year, Hasbro announced plans to turn its fortunes around, with its stock price returning -8.5% per year on average over the past five years. The blueprint for success included organizational changes, cost reductions, a streamlined focus on larger brands, gaming and digital, and building a consumer and licensing business. The goal is to increase efficiency and drive profitable growth.
Part of that was selling the eOne film and TV business. The sale took a huge toll on Hasbro’s sales, with first-quarter profits falling 24% year-over-year to $757 million. Excluding divestitures, the toymaker’s sales fell 9%, driven by a 21% drop in sales from its consumer products segment. But Hasbro’s digital games and entertainment division has seen higher profits.
All of the company’s efforts were part of an overall plan to cut costs, which benefited the company’s bottom line. Hasbro reduced costs by 28% and selling, general and administrative expenses by 26%. It also cut advertising and product development costs.
Hasbro also halved its inventory from $713 million last year to $336 million in the first quarter. Typically, lower inventory allows businesses to save on storage costs and focus on selling newer, more popular products.
As a result, Hasbro’s operating profit rose significantly to $116 million from $18 million in the same quarter a year ago. This allowed the company to generate a profit of $58 million, or 42 cents per share, in the current quarter, compared to a net loss of 16 cents per share in the first quarter of 2023.
“We made solid progress in our first quarter turnaround efforts,” Hasbro Chief Financial Officer Gina Goetter said in the earnings report. “We were profitable as expected and drove significant operating profit improvement through our operational excellence program and improved business mix,” she said. We continue to deliver on our year-long commitment.”
Want to buy Hasbro?
Hasbro certainly appears to be moving in the right direction in streamlining and refocusing its business, but earnings may still suffer.
In its full fiscal year outlook, Hasbro expects consumer product sales to decline 7% to 12% compared to the previous year and digital gaming revenue to decline 3% to 5%. However, the operating profit margin of this sector is expected to be 38-40%. Additionally, the entertainment segment’s adjusted operating margin is estimated at 60%, but revenue is expected to decline by $15 million.
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. The company is targeting $750 million in total cost savings by 2025.
Overall, considering the company’s earnings issues and changes, the stock still appears to be overvalued. 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 appears to be moving in the right direction.
disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.
