Hasbro Takes Q1 Fiscal Hit From eOne Acquisition — Not COVID-19

Hasbro April 29 reported a first-quarter (ended March 31) net loss of $69.6 million, compared with a net income of $76.4 million in the previous-year period. The toymaker, game manufacturer and movie producer attributed the loss to acquisition and costs associated with the $4 billion acquisition of content producer/distributor Entertainment One (eOne) in 2019.

Contributing to the loss was $127.5 million after-tax of acquisition-related expenses and $19.9 million after-tax of purchased intangible amortization associated with the acquisition. Excluding these items, adjusted net income would have been $77.7 million. Total revenue for the quarter was $1.11 billion compared to $1.2 billion pro forma revenues in 2019. Foreign exchange had an $11.7 million negative impact on first quarter 2020 revenue.

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Entertainment revenue declined in the quarter due to planned later delivery timing for eOne content. Beginning late in Q1, production and delivery of television and film projects for Hasbro’s eOne TV and movie business shut down, negatively impacting revenue.

The eOne team continues to develop new projects and work on animation production which can be done remotely,” CEO Brian Goldner said in a statement. “The team now expects to deliver finished episodes and film projects later in the year than planned.”

Indeed, several film release dates have moved to later in 2020, into 2021 and in some instances are going straight to video-on-demand/EST and packaged media, windows impacting the timing and level of anticipated revenue.

“As more people are home, content viewership is high which bodes well for long-term brand engagement,” Goldner said.

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The executive said Hasbro has been proactive during the coronavirus pushing its portfolio of “face-to-face” games to families spending more time at home.

“Point of sale at retail was strong during the first quarter and continues to be up in April,” Goldner said. “We’ve undertaken extensive scenario planning across the business and geographies as we plan for a re-opening of the economies globally.”

CFO Deborah Thomas said closure of the eOne acquisition included drawing down on a $1 billion term loan. The cash position increased to $1.2 billion at the end of the quarter, and is further supported by access to a $1.5 billion revolving credit facility, according to Thomas.

“Toward the end of the quarter, physical store closures and country-wide restrictions became more prevalent and entertainment productions shut down,” Thomas said.

The CFO expects the second quarter to be more challenging with revenue and earnings down versus pro forma 2019. “We are taking prudent steps to lower expenses and preserve capital while positioning to meet the seasonal peak demand periods of the business in the second half of the year, including the holiday season.”

With third-party factories in China representing about 55% of Hasbro’s manufacturing production — and operating at reduced capacity. Thomas expects Chinese factories that are making product across the business, including games, would typically build to peak levels during the summer months—- making up production lost in the first quarter into the second quarter.

“These beliefs assume all production continues to operate in all material respects without further COVID-19 shutdowns,” Thomas said. “While the ultimate impact will vary depending on how long it takes to reopen markets around the world, we are currently seeing healthy demand for our products and content.”

Hasbro said manufacturing and warehouse partners outside of China operated at close to normal levels during much of the first quarter. Beginning in mid-March and through today, these locations are operating at varying levels of productivity depending on local government and safety considerations, with some markets operating at lower than normal production levels and other facilities have been closed for a period of time.

Currently closed facilities include manufacturing in Massachusetts, Texas and Ireland, primarily for games, as well as manufacturing locations in India.

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