Hasbro (HAS)

Toy and entertainment company Hasbro (NASDAQ:HAS) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 17.1% year on year to $887.1 million. Its non-GAAP profit of $1.04 per share was 54.3% above analysts’ consensus estimates.

Company Overview

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.

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.

Competitors in the toy and entertainment sector include Mattel (NASDAQ:MAT), Funko (NASDAQ:FNKO), and Jakks Pacific (NASDAQ:JAKK).

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Hasbro struggled to consistently generate demand over the last five years as its sales dropped at a 3.5% annual rate. This wasn’t a great result and suggests it’s a low quality business.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Hasbro’s recent performance shows its demand remained suppressed as its revenue has declined by 13.5% annually over the last two years.

Hasbro also breaks out the revenue for its three most important segments: Consumer Products, Entertainment, and Wizards & Digital Gaming, which are 52.1%, 44.9%, and 3% of revenue. Over the last two years, Hasbro’s Entertainment revenue (content) averaged 110% year-on-year growth while its Consumer Products (toys, games, apparel) and Wizards & Digital Gaming (Wizards of the Coast) revenues averaged 11.6% and 4.9% declines.

This quarter, Hasbro reported year-on-year revenue growth of 17.1%, and its $887.1 million of revenue exceeded Wall Street’s estimates by 14.8%.

Looking ahead, sell-side analysts expect revenue to decline by 2.2% over the next 12 months. While this projection is better than its two-year trend, it's tough to feel optimistic about a company facing demand difficulties.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Hasbro’s operating margin has been trending up over the last 12 months, but it still averaged negative 7.7% over the last two years. This is due to its large expense base and inefficient cost structure.

In Q1, Hasbro generated an operating profit margin of 19.2%, up 3.9 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Hasbro’s flat EPS over the last five years was weak but better than its 3.5% annualized revenue declines. This tells us management adapted its cost structure.

In Q1, Hasbro reported EPS at $1.04, up from $0.61 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Hasbro’s full-year EPS of $4.45 to shrink by 5.9%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Hasbro has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 13.6% over the last two years, better than the broader consumer discretionary sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Hasbro’s free cash flow clocked in at $94.9 million in Q1, equivalent to a 10.7% margin. The company’s cash profitability regressed as it was 6.7 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Hasbro historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 1.6%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Hasbro’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Hasbro reported $621.1 million of cash and $3.33 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.16 billion of EBITDA over the last 12 months, we view Hasbro’s 2.3× net-debt-to-EBITDA ratio as safe. We also see its $61 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Hasbro blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. Zooming out, we think this quarter featured some important positives. The stock traded up 6.7% to $56.16 immediately following the results.

Updated: July 10, 2025 at 10:48 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Hasbro, you should also grasp the company’s longer-term business quality and valuation.

Hasbro falls short of our quality standards. For starters, its revenue has declined over the last five years. And while its solid free cash flow generation gives it reinvestment options, the downside is its projected EPS for the next year is lacking. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Hasbro’s P/E ratio based on the next 12 months is 18.4x. This multiple tells us a lot of good news is priced in - you can find more timely opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $79.03 on the company (compared to the current share price of $77.57).