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Entertainment products and content company Hasbro, Inc. (NYSE: HAS) shares spiked as high as $104.89 on an impressive Q2 2021 earnings release but have since cratered over (-10%) on fears of supply chain disruptions. The Company finally turned around its divisions as all three segments showed growth in the quarter and even the eOne entertainment division improved. The latter is a powerful growth driver that should fuel its impressive portfolio of IPs including G.I. Joe and the Transformers. The lifting of COVID-19 restrictions accelerated by COVID-19 vaccinations have enabled the division to reengage the production of live-action films and streaming content. Growth has returned to the Company amidst fears of supply chain issues affecting the upcoming holiday season. The Company also plans to bolster margins with price increases that have gone into effect in Q3 2021 and has passed on shipping costs to consumers as the demand is still strong enough to warrant them. Markets may have overreacted in the near term to present prudent investors opportunistic pullback levels to gain exposure ahead of the holiday shopping season.
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Q2 FY 2021 Earnings Release
On July 26, 2021, Hasbro released its second-quarter fiscal 2021 results for the quarter ending June 2021. The Company reported an adjusted earnings-per-share (EPS) profit of $1.05 excluding non-recurring items versus consensus analyst estimates for $0.47, a $0.58 beat. Revenues rose 53.7% year-over-year (YoY) to $1.32 billion, beating consensus analyst estimates for $1.17 billion. The Company reported earnings 9% higher than same quarter 2019. Each of Hasbro’s three segments showed growth in Q2 2021 with its largest segment Wizard’s of the Coast and Digital Gaming doubling revenues YoY with a 47% operating margin profit.
CEO and CFO Comments
Hasbro CEO Brian Goldner commented, “The global Hasbro team executed a very good quarter, driving strong sell in and demand in the Consumer Products segment; growing both analog and digital revenues in Wizards and our licensed digital gaming business; and positioning us to deliver growth for the full year in the Entertainment segment. We continue to target full-year double-digit revenue growth for Hasbro supported by innovation and quality execution throughout the business. Across Hasbro we are focused on unlocking the full potential value of our brands and capabilities as a play and entertainment leader.”
Hasbro CFO Deborah Thomas added, “Our first quarter started the year well. The team delivered revenue and profit gains, as well as strong cash generation, ending the quarter with $1.43 billion in cash, after retiring $300 million in debt and paying our quarterly dividend.”
Conference Call Takeaways
CEO Goldner set the tone, “This quarter marked the first with our new reporting segment structure, which provides a clearer view of the drivers of Hasbro revenues, profit, margin, and cash generation. As we shared at our investor event in February, our Brand Blueprint succeeds as we create value from our three businesses; Hasbro Consumer Products, including toys and games; Wizards of the Coast and Digital Gaming; and Entertainment. Each has a growth plan that drives that segment, but also drives growth across Hasbro.” He continued, “Throughout last year robust demand drove the high point of sale and revenue growth. In the Consumer Products segment, this surge in gaming demand began around week 12 of last year. If we look at the U.S. this year, heading into that same week our games point of sale was up more than 30%. Once we hit week 12, point of sale slowed. Despite the tough comparison, underlying game demand is healthy and point of sale is more than 30% higher than 2019 pre-COVID levels. We have many new games both this spring and for the holiday and the availability of classic games to continue meeting the high levels of gaming demand. Within Wizards of the Coast and Digital Gaming, MAGIC: THE GATHERING and DUNGEONS & DRAGONS both posted double-digit revenue increases. Fueling this growth is both tabletop and physical play as well as the team’s continued expansion in digital. MAGIC was up against an exceptionally good first-quarter shipment number last year. Based on release strength and timing, we continue to expect the second quarter to be the biggest for MAGIC and Wizards this year.” He concluded, “We are currently in pre-production for the Dungeons & Dragons live-action feature, with a new release date of March 3, 2023 and an amazingly talented cast and crew. During the quarter the team wrapped principal production on two films, All the Old Knives and Arthur the King, and are currently in post-production on both. In scripted TV, Cruel Summer completed filming and premiered last week on Freeform, and we continued deliveries of Season 3 of The Rookie. In unscripted, we have a robust slate of shows in Canada, the U.S., and the UK underway, with more than 40 active productions. We announced yesterday an agreement to sell the eOne music business for $385 million. We continue to focus on the core strategic elements of our Brand Blueprint as a play and entertainment company. While we plan to continue working with the music group including music supervision and music rights exploitation across several brands, music was not the primary driver of our acquisition of eOne. This transaction will allow the team to continue investing to grow and unlock value for its many talented artists and partners.”
HAS Opportunistic Pullback Price Levels
Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for HAS stock. The weekly rifle chart is attempting to breakout as the rising 5-period moving average (MA) at $96.10 support has crossed up through its 15-period MA. The weekly stochastic has also crossed up again in a pretzel formation with upper Bollinger Bands (BBs) starting to expand at $102.12. Shares spiked on earnings reaction to peak at the $104.88 Fibonacci (fib) level. The daily rifle chart is uptrending with rising 5-period MA at $100.98 as shares slip for a potential tightening to 15-period MA at $96.86. The daily market structure low (MSL) buy triggered on the bounce through $94.39. The daily stochastic has a mini pup rising through the 70-band. Prudent investors can monitor for opportunistic pullback price levels at the $98.39 fib, $97.31, $95.61 fib, $94.39 daily MSL trigger, $92.52, $90.39 fib, $88.19 fib, and the $86.63 fib level. Upside trajectories range from $108.49 fib up to the $126.87 level.