Hasbro Third Quarter 2026 Earnings Conference Call - HASBRO INC

Financial Performance:

• Third-quarter 2026 net revenue reached $1.6 billion, representing a 15% year-over-year growth.
• Adjusted operating profit surged 52% to $541 million, with an adjusted operating margin expanding 830 basis points to 33.9%.
• Adjusted diluted EPS rose 73% to $2.90.
• Year-to-date (first nine months) net revenue was $3.7 billion (+15%), adjusted operating profit was $1.1 billion (+35%), and adjusted operating margin expanded to 29.7%.
• Total adjusted EBITDA was $605 million in Q3 (+46%) and $1.27 billion year-to-date (+29%).
• Operating cash flow for the first nine months totaled $907 million, up 85% year-over-year.
• Cost transformation program contributed $105 million year-to-date against a full-year target of $150 million.
• Tariff refunds recognized in Q3 contributed approximately $48 million to Consumer Products results and $40 million in total impact; China tariff rates updated to 12.5%.

Guidance and Future Outlook:

• Full-year 2026 revenue guidance raised to 7–9% growth on a constant currency basis.
• Full-year 2026 adjusted EBITDA guidance raised to $1.575–$1.625 billion.
• Wizards of the Coast segment revenue expected to grow 16–18% with operating margins of 44–45%.
• Consumer Products segment revenue expected to grow 1–3% with operating margins targeting 8–10%.
• Entertainment segment revenue expected to grow 3–5% with operating margins around 65%.
• Q4 revenue phasing includes a step-up in royalties, $15 million in marketing spend for video games, and a $40 million revenue shift out of Q4 due to Q3 sales acceleration.
• 2027 outlook: Wizards expected to operate in high 30s to low 40s margin range; digital game amortization (Exodus, Warlock) expected to push adjusted EBITDA margins to low 30s range in 2027 due to non-cash charges.
• 2028 digital development costs (CapEx) expected to decrease 20–25%.
• Share repurchase target increased from $200 million to $400 million for the year; $149 million already repurchased.
• Long-term goal for Consumer Products operating margins is to reach double digits.

Business Segments and Product Lines:

• Wizards of the Coast: Revenue grew 31% to $747 million; Magic revenue jumped 34% to $616 million (first time exceeding $600M quarterly).
• Wizards Products: "The Hobbit" set launched as the fourth best-selling set in history with a leaner SKU count; "Reality Fracture" exceeded expectations; Backlist and Secret Lair on track for record years.
• Wizards Strategy: "Universes Beyond" strategy successfully driving new player acquisition; 2027 to feature six full product suite tentpole sets including "Marvel Darkhold Destiny" (original storyline).
• Digital Gaming: "Magic: The Gathering – Exodus" confirmed for April 7, 2027 launch; "Warlock: The D&D Action Adventure Game" scheduled for 2027; Monopoly Go digital revenue up 3% to $134 million.
• Consumer Products: Revenue grew 4% to $828 million; Marvel products up >35%; Transformers 40th anniversary and Spider-Man drives; Inventory down 10% YoY.
• Entertainment: Revenue grew 9% to $20 million with 91.1% margin; Licensing revenue reported separately as $144 million (down 4% YoY due to non-recurring prior items).
• Licensing: Asset-light model generating nearly $700 million annual revenue across five priorities (franchise system, consumer products, location-based, digital, entertainment/music).

Market and Competitive Landscape:

• Magic: The Gathering is identified as the number one category in toys and games, surpassing building blocks.
• Organized play participants increased >40% over the first nine months of 2026 compared to all of 2024.
• Trading card game distribution expanded 38% in Wizards Play Network stores (13,000+) and 28% in mass market doors (40,000+).
• "Gem Square" categories (gamified, entertainment-driven, multi-purchase, multi-generational) are up nearly 14% year-to-date.
• Hasbro remains a top-five global licensor with $17 billion in annual retail sales under license.

Risks and Challenges:

• Revenue Phasing: Q4 Wizards revenue is expected to be modestly negative due to timing shifts of product releases (Reality Fracture) and new year launches, though underlying growth remains strong.
• Margin Compression: 2027 margins will face pressure from non-cash amortization of video game development costs ($Exodus, $Warlock).
• Macro/Cost Pressures: Oil-related input costs and royalty expenses rising, though offset by productivity gains and tariff refunds.
• Supply Chain: Balancing cost, speed, and resilience across the sourcing footprint in a dynamic trade environment.
• Market Volatility: Potential consumer roll-over risks managed by focusing on resilient "Gem Square" categories and IP-driven demand.

Management Commentary and Tone:

• Tone is highly confident, characterized by the CEO stating they are "raising our outlook with confidence."
• Management emphasized "execution" and staying true to the "superpower of inspiring a lifetime of play."
• CEO Chris Cox highlighted that Wizards manages the game for fans rather than quarterly results, explaining revenue shifts as supply chain optimizations rather than demand weakness.
• CFO Gina Getter noted the quarter's strong cash flow allows for increased capital allocation to shareholders and debt reduction.

Analyst Questions and Answers:

• Magic Performance: Analysts asked about Q3 outperformance; Management attributed this to strong backlist sales, successful "Universes Beyond" sets (The Hobbit), and record player engagement.
• Q4 vs. 2027 Guidance: Clarified that while Q4 Wizards revenue is projected to decline, the back-half 2026 growth remains high-single to low-double digits, with 2027 Magic growth expected in mid-to-high single digits.
• Margin Sustainability: Management explained 2027 margin compression is primarily driven by video game amortization, not core operational deterioration; underlying Magic margins expected to remain healthy.
• Distribution: WPN store growth (38%) and mass market growth (28%) cited as evidence of channel vitality and retailer demand.
• 2027 Product Slate: Upcoming sets including Harry Potter (2027), Legend of Zelda, and Marvel Darkhold Destiny confirmed; all 2027 sets will feature full product suites to maximize sales potential.
• Exodus Game: "Wish list" activity approaching 1 million; management monitoring pre-orders as key early indicators.
• Consumer Products: Strong 2027 pipeline including new Spider-Man, Avengers, Star Wars 50th, and Legend of Zelda movie tie-ins supports long-term growth.

Other Key Points:

• Hasbro is the number one licensor in location-based entertainment.
• Peppa Pig's "Baby Evie" initiative drove retail sales up nearly 30% while cutting marketing spend by a third.
• "Reality Fracture" pre-release participation was the highest for any "Universes Beyond" release.
• Magic: The Gathering organized play sales were up nearly 30% year-over-year for the "Magic in Atlanta" event.
• Hasbro has repurchased $149 million of stock year-to-date and is active in the market for the remainder of the year.