Hasbro's (NASDAQ:HAS) Q1: Beats On Revenue, Stock Soars

Max Juang /
2024/04/24 6:38 am EDT

Toy and entertainment company Hasbro (NASDAQ:HAS) reported Q1 CY2024 results topping analysts' expectations, with revenue down 24.3% year on year to $757.3 million. It made a non-GAAP profit of $0.61 per share, improving from its profit of $0.01 per share in the same quarter last year.

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Hasbro (HAS) Q1 CY2024 Highlights:

  • Revenue: $757.3 million vs analyst estimates of $740.9 million (2.2% beat)
  • EPS (non-GAAP): $0.61 vs analyst estimates of $0.28 (115% beat)
  • Guidance for 2024: adjusted EBITDA of $963 million (maintained from previous) vs analyst estimates of $950 (1.3% beat)
  • Gross Margin (GAAP): 73%, up from 52.4% in the same quarter last year
  • Free Cash Flow of $132 million, down 61.4% from the previous quarter
  • Market Capitalization: $8.09 billion

"The first quarter was a good start to the year for Hasbro; we are continuing to see the results of our transformation work," said Chris Cocks, Hasbro Chief Executive Officer.

Credited with the creation of toys such as Mr. Potato Head and the Rubik’s Cube, Hasbro (NASDAQ:HAS) is a global entertainment company offering a diverse range of toys, games, and multimedia experiences for children and families.

Toys and Electronics

The toys and electronics industry presents both opportunities and challenges for investors. Established companies often enjoy strong brand recognition and customer loyalty while smaller players can carve out a niche if they develop a viral, hit new product. The downside, however, is that success can be short-lived because the industry is very competitive: the barriers to entry for developing a new toy are low, which can lead to pricing pressures and reduced profit margins, and the rapid pace of technological advancements necessitates continuous product updates, increasing research and development costs, and shortening product life cycles for electronics companies. Furthermore, these players must navigate various regulatory requirements, especially regarding product safety, which can pose operational challenges and potential legal risks.

Sales Growth

Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Hasbro's revenue was flat over the last five years.

Hasbro Total Revenue

Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Hasbro's recent history shows a reversal from its five-year trend as its revenue has shown annualized declines of 14.2% over the last two years.

This quarter, Hasbro's revenue fell 24.3% year on year to $757.3 million but beat Wall Street's estimates by 2.2%. Looking ahead, Wall Street expects revenue to decline 12.6% over the next 12 months.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Over the last two years, Hasbro has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 7.1%, subpar for a consumer discretionary business.

Hasbro Free Cash Flow Margin

Hasbro's free cash flow came in at $132 million in Q1, equivalent to a 17.4% margin and up 271% year on year.

Key Takeaways from Hasbro's Q1 Results

We were impressed that Hasbro beat on revenue, operating margin, and EPS. The company maintained its full year outlook, and adjusted EBITDA guidance for the full year is above expectations. Zooming out, we think this was a great quarter that shareholders will appreciate. The stock is up 5% after reporting and currently trades at $61.05 per share.

Hasbro may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.