Q4 2020 Hasbro Inc Earnings Call
Yeah.
And then.
[music].
Good morning, and welcome to the Hasbro fourth quarter and full year, 'twenty and 'twenty earnings conference call at.
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A question and answer session will follow the formal presentation.
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At this time I would like to turn the call over to MS. Debbie Hancock Senior Vice President of Investor Relations. Please go ahead.
Thank you and good morning, everyone. Joining me today are Brian Goldner, Hasbro's, Chairman and Chief Executive Officer, and Deb, Thomas Hasbro's, Chief Financial Officer Today, we will begin with Brian and Deb, providing commentary on the company's performance. Then we will take your questions our earnings release and presentation slides for today's call.
And are posted on our Investor website. The press release and presentation include information regarding non-GAAP adjustments and non-GAAP financial measures our call today will discuss certain adjusted measures, which exclude these non-GAAP adjustments and well.
And we'll be versus pro forma adjusted 2019 results a reconciliation of GAAP to non-GAAP measures is included in the press release and presentation. Please note that whenever we discuss earnings per share or EPS. We are referring to earnings per diluted share before we begin I would like to remind you that during this call and the question and answer session that fall.
Those members of Hasbro management May make forward looking statements concerning management's expectations goals objectives and similar matters. There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed and these forward looking statements. These factors include those set forth and our annual report.
And on form 10-K, our most recent 10-Q and today's press release and and our other public disclosures. We undertake no obligation to update any forward looking statements made today to reflect events or circumstances occurring after the date of this call I would now like to introduce Brian Goldner, Brian.
Yeah.
Thank you Debbie good morning, everyone and thank you for joining us today.
The Hasbro team that the distinct and unique challenges and 2020 with tremendous resilience and excellence.
And leverage the breadth of our portfolio and global footprint of our business and the diverse and amazing talent and a company to lead our organization through the year.
I cannot say enough about the quality of the people that I have the honor to work with every day.
As consumers of all ages found themselves at home they sought ways to connect and find joy.
Hasbro is uniquely qualified to meet this need for every demographic on.
Our brands toys games and content are valuable as they bring happiness and enjoyment to so many in this unprecedented global environment.
After a very challenging June quarter on a performance improved and the second half of the year.
Throughout the year, we advanced our commercial and retail our programs and supply chain capabilities to meet consumer demand, while managing expenses and cash.
We grew hasbro's operating profit margin and finish the year with one and 24 $5 billion and cash on our balance sheet.
We finished 2020 with growth and revenues and adjusted operating profit and the fourth quarter.
And of comparison with the successful theatrical releases a year ago.
The 'twenty and 'twenty holiday season was extended starting earlier with strong consumer demand and October and November but seeing some challenges for key weeks in December.
The period, then ended with strong point of sale growth and this momentum has continued and accelerated in January.
The comparison with frozen was extremely challenging due to our success in December 2019.
If we exclude frozen from the data Hasbro's Pos grew 4% for the fourth quarter across the <unk> 11.
And also gain share and recorded the fastest point of sales growth on Amazon and the toy and game market in the U S and top European markets during the fourth quarter.
For the full year, we delivered $1 $8 billion and gaming revenue and increase of 15%.
Franchise brands Magic, the gathering and monopoly each had their best year ever.
Dungeons and Dragons did as well and classic games like Jenga operation and connect four to name a few of many had stellar years.
Our gaming business grew in all regions, but Latin America.
The result reflects the ability of our supply chain marketing and commercial teams to pivot and meet the demand of consumers as they change their behaviors at pace.
Gaming has long been a priority investment category for Hasbro.
Our brands and our teams lead this market and we have clear growth plans in both face to face and digital gaming for the coming years.
You'll hear more from Chris Cox President of Wizards of the coast and Eric can island, and Chief Consumer Officer at our virtual Investor event on February 25th.
To meet the high consumer demand and gaming and other categories, we leveraged our global retail network and investments and new channels.
By year, and the team drove more than $1 billion and E comm revenues and a 43% increase from last year and representing just under 30% of our global revenues.
This translated to close to a 10 percentage point increase.
Pure play and omni channel retailers led this growth and omni channel made significant strides to double their E com revenue for the year.
Our teams work closely with retailers to expand their online offerings, as many AD and click and collect and their capabilities during the year.
With channel support and innovative tailored product Hasbro also grew revenues with the band channel last year.
We augmented this with our own D to C capabilities, leveraging Hasbro pulse to create authentic fan experiences.
While pulses, a small but growing piece of our revenue today. It is a unique experience that we're leveraging for continued growth and unmatched connections with the important fan community.
In addition to our global retail network, our global supply chain capabilities, and our evolving geographic manufacturing supplier base worth central to meeting demand.
Due to Covid and changing consumer behaviors, we had disruptions from production the logistics, but the team worked tirelessly to meet the demand and successfully execute the year.
We added new E comm capabilities and identified opportunities to further enhance these going forward.
We continued to diversify our manufacturing, reducing our reliance on any one country ending 2020 with approximately 55% of production and China.
To support New brand development and deeper brand engagement, we on boarded the one team and their expansive capabilities and brands and storytelling.
While live action television and film production were limited and much of the year, we made substantial progress developing Hasbro IP for entertainment and we expect will lead to enhanced revenues and earnings power across multiple income streams.
After returning to live action production and the third quarter, you on revenues and profit increase versus 2019 for the last quarter of the year.
As deliveries resumed to our broadcast partners.
Over the course of 'twenty and 'twenty, we completed production on 59 series across scripted and unscripted TV and five feature films.
With COVID-19 protocols in place production continues around the world.
While the near term theatrical landscape remains uncertain, we see a path to its return and the opportunities and streaming and linear now and into the future are clear and compelling for both viewership and merchandise.
The combination of Hasbro's portfolio and <unk> expertise is unlocking opportunity to expand our brands and launch new ones.
This takes time and investment, but we have established a robust and deep slate and a roadmap to drive growth and our business for years to come.
Our teams are also on track to launch Hasbro and developed marketed and distributed toy and game lines for the leading preschool brands Peppa pig and PJ masks later this year.
To further support our portfolio, we have fully integrated our consumer products organizations to drive immersive brand experiences across categories.
With Hasbro's global retailer reach and brand category expertise as well as retailers and the license consumer product space and reopening and operating we're expanding these brands.
This is further enhanced by Hasbro IP like my Little Pony, which has been reinvented under the new one family brands team leadership and his re launching later this year.
One team will share more on our progress and plans at our event on February 25th.
'twenty 'twenty showcased how story and cower character executed via streaming platforms and stripes merchandise.
Hasbro Star Wars product revenues grew nearly 70% last year, despite it being our first year without a theatrical release since 2014.
This growth was driven by the strength of the Disney plus global rollout of Amanda laureate.
All regions grew versus prior year with the strongest growth in Europe, and North America and Australia.
The child products were a significant driver of the business, including the child. Animatronics addition, our signature holiday items and the number one item and the plush category in North America, and several other markets and the fourth quarter. According to NPD.
The success of this line and help Hasbro achieved the number one position and the plush Super category across the G 11 for 'twenty and 'twenty.
Even without the child items, Hasbro Star Wars lines grew significantly behind increasing fan engagement globally, and Black series and the vintage collection, a reemergence of our kids business fueled by lightsabers, and our new vehicle lining mission clean.
And a resurgence and casual pop culture fans and Star Wars overall.
Hasbro is commercial and brand teams are executing meaningful global merchandise programs for streaming properties and supporting significant future partner brand initiatives, including with Disney plus for Star Wars, Marvel and Disney Princess and frozen as well as Hasbro led streaming initiatives for our portfolio.
From children through adult.
At the center of everything we did last year and in every year is our community and Hasbro employees and stakeholders.
2020, you reminded us that living our purpose and values is imperative to continuing our legacy as a responsible corporate citizen.
To drive this forward, we recently appointed Catherine and Bellevue, a longstanding Hasbro leader and our CSR practice as our first chief purpose Officer I.
And I strongly believe Hasbro has both the opportunity and responsibility to lead as a corporate citizen across all aspects of our business.
As we look to the coming year, we continue to see consumers and retailers turning to our categories and Hasbro we.
We have amazing new lines, coupled with planned increases and theatrical and television and streaming entertainment to drive the business.
Investments and innovation and new growth drivers, including digital gaming and entertainment will come to market.
We believe we will grow in 2021, as we continue and navigating through COVID-19, while leveraging our unparalleled portfolio of brands and capabilities and consumer products gaming and entertainment.
I'll now turn the call over to Deb Deb.
Thank you, Brian and good morning, everyone.
The Hasbro team did amazing work in 2020, delivering a good year prioritizing the health and safety of our employees and our communities, while navigating retail and supply chain disruptions.
The team never lost focus on strengthening an already solid balance sheets, while managing the business for profit and cash generation and the near term and investing for future growth.
On a full year revenue decline of 8% operating profit declined only 1% and operating profit margin increased 110 basis points to 15, 1%.
Our strong fourth quarter aided this full year result, and operating profit margin grew 480 basis points on 4% revenue growth and the final period of the year.
I'm, particularly proud of the work we did to manage working capital.
Hasbro generated $976 million and operating cash flow last year, ending 2020, with 1.45 billion and cash.
We paid part of our term loan earlier than anticipated and reduced 123 million on this long term debt.
We're progressing and paying down our debt and remain headed toward returning to our targeted two to two five times debt to EBITDA.
We also returned $373 million and quarterly dividends during the year.
Combined with today's notice of the May dividend payment and then the board has already declared the first two quarterly payments for this year.
Throughout 2020, our treasury and commercial teams work hand in hand, supporting global retailers as their businesses changed without warning in some instances to meet rising demand and others to manage shutdowns.
Dsos declined 17 days on a pro forma basis to 74, reflecting both strong collections and a geographic shift and customer base to those with shorter terms.
Consumer demand and inventory management drove inventory down 11% with lower positions and all regions led by the U S.
Day sales and inventory were down 38 days year over year.
Retail inventory at year end was of good quality and level, increasing slightly and the U S and supply continue to improve while declining and most of the markets.
Importantly, retailers were well positioned to meet the strong uptick in demand this January and major markets like the U S and Europe.
With live action television and film production limited this activity returned during the third quarter.
And as a result, our full year 2020 cash spend on content was $439 million slightly below the expected low and.
As production has returned and we manage COVID-19 protocols to safely keep them up and running our cash spend on content across scripted and unscripted live action animated television and film and 2021 is planned to be and the range of 675 million to $750 million.
Well on managing a rapidly changing business environment, the Hasbro and even one teams made significant progress toward both the business and financial goals of our integration.
Brian spoke to much of the business progress, which contributed to approximately $30 million of cost savings.
This is ahead of the plan, we shared at toy fair last year and puts us well on our way to Oracle on the $130 million and synergies by the end of 2022.
This is just the beginning of unlocking incremental revenue and profit from the acquisition as we further develop existing brands and launch new ones to extend the reach and value of our consumer products.
<unk> and entertainment initiatives.
Looking at our performance, our fourth quarter revenue and operating profit growth as discussed in our earnings release and presentation today.
I will focus my commentary on the full year 2020, and provide an outlook for certain items for 2021.
In the U S and Canada segment revenues grew 4% and operating profit increased 30% on 420 basis points due to gains and franchise brands led by magic the gathering and Hasbro gaming.
Operating profit increased on favorable product mix, partially offset by higher freight costs from increased domestic shipments and the U S and higher product development and other costs net wizards of the coast to support future game launches.
And our Investor event, Chris Cox will share more details about Wizards plans in this area.
International segment revenue and operating profit declined primarily due to declines in Latin America and Asia.
European revenues were flat.
Hasbro gaming revenue increased as did magic the gathering.
The International segment operating profit declined as a result of lower revenues, partially offset by lower spending, most notably and advertising and marketing as well as lower royalties.
As we discussed throughout the year Latin America was challenging.
Toy and game market declined retailers are closed E. Comm is underdeveloped and we reduced our inventory at retail.
This impact 2020 revenue and margins and we are now better positioned to stabilize the business and drive profit improvement this year.
Entertainment licensing and digital segment revenue declined led by entertainment as compared to 2019, which included the Transformers Bumblebee film revenue as well as declines and licensed consumer products.
Operating profit increased behind growth and higher margin licensed digital gaming and cost savings.
<unk> segment revenue declined from pro forma 2019, due to both lower TV and film revenue from COVID-19 related live action production and theater shutdowns as well as lower family brand revenue from retail disruption.
Operating profit for the E. One segment decreased due to the decline in revenues, partially offset by lower advertising and royalty expense.
For Hasbro overall gross margin, including cost of sales and program amortization increased 140 basis points.
Product mix led by Wizards of the coast and gaming resulted in a slightly lower cost of sales as a percentage of revenue.
This combined with the reduction and program amortization drove the improvement.
To better help you understand the components of cost of sales. We included the 2020 breakdown and our earnings presentation today.
The improvements were partially offset by additional markdowns and Latin America, and Asia to reduce inventory levels at retail.
For 2021, we anticipate cost of sales to decline as a percentage of revenue, but this is expected to be more than offset by a return to more normal levels of program amortization in the 9% to 10% range.
Royalties were down slightly as a percentage of revenue reflecting mix. We anticipate several theatrical launches in addition to streaming content and innovation across our lines to support our partner brand portfolio.
But in 2021, it is expected to decrease slightly as a percentage of the total.
Advertising and 2020 was lower than historical levels, reflecting both the decision to non advertised during periods when consumers were unable to shop and lower theatrical and entertainment events, which would traditionally have P&A support from me one.
In 2021, we anticipate more normal levels of activity and AD spend to be and the 8% to 9% of revenue range.
Intangible amortization and excluding acquisition amortization for you one came in at the forecasted $47 million and is planned to decline to approximately $32 million and the coming year as certain property rights are now fully amortized.
For 2020, SG&A totaled 22, 8% of revenues up from 21%.
We took aggressive cost saving actions, which lowered spending meaningfully but this overall decline was offset by higher costs in part, resulting from the pandemic, namely and freight and bad debt as well as depreciation and investments at Wizards for gaming development in 2021, some of the spending will return.
Turn.
SG&A dollars should increase but it is expected to decrease slightly as a percentage of revenue.
We're closely watching the freight environment, which impacts both cost of sales and SG&A.
We've been able to meet demand, despite challenges and shipping and port congestion, but the cost of doing so is increasing and does not appear to be reversing at least in the not in the next few months.
As we pay down debt, including the $300 million note due in may and interest expense should decline to approximately $188 million from 201.
For 2020, our underlying tax rate absent intangible amortization associated with the E. One acquisition, one time charges and ordinary discrete items is 21%.
The fourth quarter underlying tax rate was 18%, which includes ordinary discrete tax benefit of roughly 6% the.
And the discrete benefit in the quarter was primarily due to tax planning associated with the EMA on integration and other ongoing planning.
Based on currently enacted tax law, we expect our underlying tax rate for 2021 to be approximately 21% excluding expected further integration charges and the amortization of the <unk> acquisition intangible.
And we look ahead and the last year has reinforced the core tenants of Hasbro's advantage and the value of brands and play of connecting and competing through gaming the enjoyment from watching and sharing our story and our desire to make everyones life better and all that we do.
No.
The investments we made to drive these businesses and innovation and digital gaming talent and development and our entertainment studio and E Com and our supply chain were instrumental and our ability to operate.
We shared with you today, a view to 2021, but it is important to recognize that we continue to operate through a pandemic where things are at times unpredictable and don't develop as we expect.
We have great confidence and our teams and our brands are gaming launches and in our entertainment planned for the coming year to grow revenue and earnings.
We're looking forward to sharing more about our long term plans at our Investor event on February 25, and Brian and I are now happy to take your questions.
Thank you we will now be conducting a question and answer session.
Just wanted to ask a question. Please press star one on your telephone keypad and income.
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One moment, please pull for questions.
Thank you and our first question is coming from the line of Eric Handler with MK and partners. Please proceed with your questions.
Good morning, and thanks for the question.
Wonder if you could talk a bit about your Marvel business.
With Disney plus we're now getting five or six different.
Television shows this year hopefully in the back end of the year.
There will be another five or so.
Feature films, but as you look at the combination of PV plus.
Film seems like this is almost a year round business.
How are you sort of planning for this and will.
Will you be fully taking advantage of all the TV content.
Exactly well you know Eric Youre, absolutely right Marvel has been a perennial strength in the portfolio. The teams have been working on major innovation innovation and product and yes, we will be taking advantage of and partnership with all the work Disney has done and to put certain content.
On the streaming platform and Disney plus and I Hope you saw some of the trailers last night and the Big games and then also.
Tactical launches and what's really great.
Is that we have hit a tipping point that we had believed would occur around this time, where enough people are watching our streams and show over a given period, where we're able to have been ties.
And that effort and then get our retailers on board for major merchandising promotions and linear footage in store as well as actually more importantly E commerce play between our content to commerce with short short form content leading to.
Purchases and all kinds of virtual feature shop.
And Thats Marvel has been a perennial strength.
The business held up very well last year, although we didn't see growth.
And we believe that we have the opportunity. If you look at a business like Star Wars, where we benefited from just streaming content and its been.
The business, that's the size of our business back to a day when we have theatrical and yet we have no theatrical.
And it has grown substantially behind them and they'll oriented and it's not just the child.
Dozens of other products for Black series, the kids business is up our vehicle business behind mission fleet is up if we look at our own experience with Transformers and war from cyber crime, and which is our animated series on Netflix dedicated to more of the older Kid and the fan community it's driven.
And that business and.
And a major way with Transformers results quite strong Pos.
Good and really linking all of that to our E com and omni channel effort. So yes, we have a major play this year and we're very excited about the combination of stream content as well as Phil and got that.
Great and just one follow up.
Magic together and mobile game.
Game launched got pushed into 2021.
You may have noted that last quarter wondering.
And at what point might be able to see this games that are first half of the guidance.
Yeah. So we've it's actually on a like a prerelease access on Android and.
Now and it will go to a full launch just a bit later this year and the iOS format Waffle launch so yes, it's in 2021 and <unk>.
A number of months from now and the team is well on its way to to create the formatting and.
It's a very very playable and people really like the games. So we're really excited about getting to the broader audience frankly, and gaming that are playing mobily versus playing on their Pcs.
Thank you.
Yeah.
Our next question comes from the line of Steph Wissink with Jefferies. Please proceed with your question.
Thank you good morning, everyone and we have a two part question related to E. One Brian maybe this is best for you and then and that's definitely jump in as well, but we're trying to understand a little bit about the backlogs and with the business up and the fourth quarter and it sounds like off to a decent start for the year how much of the committed programming that you had planned to do in 2000.
Can you recoup and 2021 and.
And then related as you in house, the Pepper and PJ masks business can you just help us think through the mechanics of the graveyard ing of your existing licensees and the rollout of your product in the channel and we get to the fourth quarter, what what's the proportionality what percentage of the product on shelf will be Hasbro at that point versus what will be your legacy.
Licensees. Thank you yes.
Right.
So.
As we look at the business on.
T J and then I'll, let Deb talk a bit about <unk>.
First question.
On pepper and P J and the teams of marketed and developed.
Our product lines and they've worked hand in glove with you on team that have led to creative on Pep and T J, where and the ninth season on tap on.
It is the most watched Youtube.
Show for Preschoolers, we have the show distributed everywhere and new content coming debt lines up really well with the product line for P. J, we're and the four seasons will already developing and we'll have that this season.
And again really.
The robust product line order of magnitude for both of those steps.
Probably we're looking at 55 O developed products for each pepper and P. J.
And that will come and the fourth quarter, but it's really important to note there.
Lot of categories that are licensees also create and that product line and those product lines that are really valuable and bring new play and play experiences to kids consumers fans all around the world and so they'll continue to be licensees on those businesses in fact the <unk>.
Combined consumer products team between <unk> and Hasbro are building, even more robust consumer product programs given that Hasbro has much bigger global footprint and some of our.
Our core toy and game licensees have had over time. So we're really looking at this financially.
We get the benefit of bringing in and and housing.
Major parts up but not the entirety of the license business for Peppa and P. J. We are then driving the retail connectivity to enable our consumer products licensees to do even a better job as we go around the world we've seen those smaller.
License type product shops, with kids apparel, and backpacks and back to school and bedding and footwear reopening because remember not all of the product is just sold that essential stores or the hypermarkets or the omni channel mass market stores in this category around the world and so the reopened.
And he's also held last point I'd make is over the fourth quarter. We've seen some great results for both brands and particularly for P. J coming out of the holiday our licensees were able to work with more reopened stores.
And great takeaway for both brands and P. J is coming out quite strongly so as pepper and we feel very good then about the financial opportunity over years to build a very robust P J and pepper business, probably even more importantly to have a much bigger foothold.
And a category warehouse for a bid and compete as broadly and preschool and so the team is also working on and we'll talk more about it new properties and new IP that they will also launch using neural nets expertise and storytelling and fab.
And to do the first one.
Sure, Thanks, Brian and and Morningstar.
Yes, we think about the carryforward from what has been going on and <unk>, one and as we know animation could continue and it was largely uninterrupted with maybe some hiccups because we first of all went.
And remote to try to get things up and running where they could but animation has largely been able to continue. So you are actually seeing that and what we've been progressing to date. So far. So it really is that live action film and TV and as we got into the end of the third quarter, we started to be able to get the production up and running and most.
Markets and Thats, why indeed, we saw growth and and entertainment.
One and the fourth quarter and we're on track to get that done if we look at the full year content spend.
And that we're projecting for 2021 is just a very small percent of that relates to the 2020 carryover, but we expect to be able to finish and deliver that production in 2020, but we've gotten the question and the past does that mean youre going to have to spend twice as much.
A lot of it has moved forward.
And a lot of it comes on during the year a lot of its on scripted Brian talked about all the progress that's being made on other brands, but there's also a progress being made on other production as well so.
And we do expect that we'll be able to finish that ongoing programming and 2021 and deliver it.
On step the only thing I would add just to frame out for you.
Our expectation for 2021, four and one we fully expect that given the way that the team has.
New IP the way Theyre working on Hasbro IP.
<unk> to new World class brands that IP and <unk> historical strength, we probably could look at revenues. This year certainly revenues growth from me, one and probably commensurate with what we saw back in 2019 for that business.
So some real good growth that we expect and increasingly mix shifting into Hasbro IP over time, beginning with unscripted, where it's easier to produce followed by some theatrical and scripted television.
Great. Thank you very much.
Our next question is from the line of RP, Nick <unk> with UBS. Please proceed with your question.
Thank you and good morning.
I know you gave different components to build to operating margin, but in terms of sort of you won't growth and incremental toy business that you're bringing under Hasbro.
And our brands like Peppa pig and PJ masks and your underlying toy growth could you help us understand what is a reasonable range on operating margin, we should be thinking for this year versus 2020.
And certainly certainly so and.
It's a good that's a follow up so thanks for that was perfect from the last question because you know.
In the near term when you think about just the entertainment component of what we've brought and there is some pressure on profit because if you think about all the costs that we're incurring ourselves as businesses with COVID-19 protocols and everything else to keep people up and safe and and.
And do things the right way there is some cost pressure and the near term, we see that profitability expanding over time, but in the near term that is going to add some cost pressure and as we get up and ready to launch and the latter half of the year.
Our product around P J and pepper, we've got it.
And if theres additional tooling expense and things like that that ramp up and we want to make it really successful as well as advertising around and this brands now, they're such terrific brands and say on and that continued relationship we're having with licensing so we see that profitability and the near term.
Being impacted a bit by some of these initial costs, but over time certainly growing into that range of what you would expect to see on.
The toy and game interesting side from the more traditional Hasbro business of the past and we see the entertainment profitability growing over time as well once we.
We're able to incorporate some of these costs and as Brian said earlier actually incorporate the Hasbro IP because that helps to make it even more profitable over time.
Okay. That's helpful.
In terms of breakdown of entertainment and licensing revenue this quarter and perhaps you could share your views on 2021 as well understand understandably you have bumblebee comps, but there's a lot going on and that line item, maybe you could parse out the drivers of what drove growth and what was offset in terms of decline for the quarter and while we're at it.
Could you comment on MTG arena.
And what do you expect to see from that business. This year. Thank you.
Sure if you look at consumer products and that category and.
Our licensing and digital.
Our digital gaming business was up.
Considerably during that period digital gaming.
<unk> was up four global gamers over the year as you know it was a tailwind and we're seeing a lot of new third party games that are being quite successful. We also see some perennial games like yahtzee with buddies that continues to perform at a very high level from scope like.
So that's a category that has done quite well and we've talked about before that and consumer products.
And the closure of a lot of smaller retailers over a period.
During 2020, where you are selling children's apparel or other types of children's products.
Ali.
Put a challenge against those revenues and the short term, but we're seeing those retailers reopening and as I indicated in the fourth quarter, we're starting to see some momentum back into those businesses.
As well as on the toy business that are being sold there as well as at major mass market retailer.
So.
Consumer products, we believe as an opportunity for growth as we go forward as we add more Hasbro IP certainly in 2021, we are building and events around the new my Little Pony animated feature film, which we're all very excited about and that should be a very robust program both for Hasbro.
<unk> product as well as consumer products.
And Uh huh.
And we kind of March forward from March forward from there I don't know if you want to comment further about the.
About the profit profile.
Yeah. The only other thing I would add is as.
As you think about the digital games coming out under our Wizards of the coast brands. So we've had arena and the past and you know Brian mentioned earlier, we've got a few games launching.
This year, a few and digital gaming launches this year those carry a bit of initial.
Depreciation and around them that we wouldn't have we wouldn't have seen as much of that this year, because we've been working on it with capitalize those costs and we'll get some more color to that on the 25 at our Investor day to try it out and try to size that out from everyone, but from a profitability standpoint, as Brian said is those retailers that handle our license business come on.
And running and that's a fairly high profit margin business, you know and <unk>.
And they're able to to get back on their feet and get back out there that and digital gaming.
We see that that impacting profitability favorably as we move forward.
Thank you.
The next question is from the line of David Beckel with remember capital markets. Please share with your questions.
Alright, thanks for the question.
And two first one for Brian I was hoping you could comment a bit I know you probably low to give specific guidance here, but just on the outlook for the toy industry. This year, given sort of the idiosyncratic nature of what took place last year clearly extremely strong grow through retail channels E com.
<unk> picking up.
I was hoping you could sort of frame what you expect for the industry as a whole this year.
And also maybe put some cash.
Context around your expectation for growth.
Which is pretty broad based for Hasbro as the year unfolds and then I have a follow up thanks.
Sure Yes.
So look I think you saw some very robust growth from the toy industry, and 'twenty and 'twenty and I think that and.
NPD and other sources are kind of re evaluating what they think growth should look like for 2021 theres been some more modest.
Expectations presented by some of the third parties. Our belief is that we should be able to grow.
In line or a head of the toy industry numbers for the year 2021 for a number of reasons.
Yeah.
Innovations if I look at the way we finished the year where.
And where we have great products, we didn't have product rolled out everywhere, but if you take the U S business for example in.
In the fourth quarter, it grew 16% with 30% growth and franchise brands every one of our franchise brands was up with the exception on my Little Pony and we've already talked about how on Restaging that this year.
Saw a double digit growth for all our franchise brands except for Transformers.
And really exit the year and our major market, where we had all the inventory where nerf was growing.
And other brands were growing we entered 2021 day and through January.
POS is up nearly 30% 28%.
And so again, it's not a holiday psi sales, but it is that growth and pass the consumer demand continues around games category and toy and game categories and.
And any other categories that were selling last year of selling again this year at the tail end of last year, we were out of stock and certain games. I mean, you just couldnt keep operations pet scan and stock we couldnt keep the child BOP, it products and stock and some monopoly products and stock. So we're again getting back into inventory, but.
C and guard robust growth and for that reason because of our innovation because of our E comm capabilities and clearly see E com running way ahead.
Brick and mortar I mean, our E com Pos.
And in.
There's a full year last year was up 33% and and the fourth quarter was up 19%. So.
Rand per brands I think will grow ahead of industry and toy and game I think consumer products over time should grow faster as we mix shift into more Hasbro IP. The margin expands as we get more from Wizards of the coast and also as digital gaming and goes beyond those early days, where we do have depreciation and mark.
<unk> expense for launching those games and they start to become more profitable over time and then of course, you want is enabling us to create profitable entertainment versus warehoused for it was historically, where entertainment with somewhat of a marketing expense and we viewed the sales of products as the reward for the investments and the entertainment.
So I would say that's how the year and we look at setting up and really think of it as three very clear business units.
And all with different profit and revenue profiles between consumer products with toy and game, our Wizards business with digital and our entertainment business, obviously led by anyone.
That's super helpful. Thank you and one for Deb.
Operating cash flow, obviously significantly outperformed your sort of medium term guidance it sounds like.
Some of that was due to a delay and production costs, but I'm wondering if you can help us think about how your learnings, particularly as it relates to working capital this year.
Might translate into higher operating cash.
Cash flow expectations going forward.
If you agree with that statement.
Sure well we.
I have to say and I said it earlier on my prepared remarks, I'm, just so proud and impressed with what our team was able to do with working capital on me and I think you had everything on play at Hasbro rally and.
Around let's keep on.
And keep the balance sheet strong and collect as much cash as we can I don't anticipate us being able to have that kind of on working capital benefit again in 2021, but as we see each piece of our business performing.
We do expect that our operating cash flow can average about $6 million to $750 million and the near term you know falling someplace within that range as we are investing more and launch costs and investing a bit more and content and then what we talked about and the path, but also we're able to get things out there and get the revenue.
From it as well and we see that moving over time back to levels that we saw certainly in 2020, but in the near term, we expect our operating cash flow and at the on the $6 million to $750 million range.
Great. Thanks, so much.
The next question is from the line of Michael <unk> with Goldman Sachs. Please proceed with your questions.
Hey, good morning, Thank you very much for the question.
My first question is just on Iran, and the toy sales.
And my understanding is that historically those toys sales were accounted for.
Net royalty revenue.
And Hasbro brings these licenses and I think that Hasbro account that for that and and wholesale toy revenue.
Is that the correct way to think about it and if so how big could that revenue uplift the on a like for like business like for like basis appreciating that this doesn't include.
Any potential synergies from executing those toy licenses better. Thank you.
Sure well, let me deal with the mechanics, and I'll, let Brian talk to the growth opportunity and so you're.
You're 100% correct, you would've seen that coming and as royalty revenue and the path there'll be some cost against that but mostly it would flow through and and impact the gross margin when you see it coming and to the Hasbro revenue it will come in like wholesale revenue like the rest of our business and we will have additional cost of sales applied against it.
The gross margin will look a bit different than it would if it was pure royalty revenue coming through and we will have some additional cost and the near term from a profitability standpoint, you know as we've invested and the startup launch costs and start up tooling and things like that you're going to see.
Profitability and not be that far off but not see that growth potential that it has on the future as we drive revenue growth and the brands and Brian do you want to talk about the revenue growth opportunity yeah. Thank you I appreciate it.
So as we look at the business Mike There is several fold elements that we're really bringing to bear here number one.
Actually because we are behind these products now and we're developing and bespoke Hasbro product lines that are expansive and as I mentioned.
Dozens of new items are very well received already by global retailers and and expectation of great distribution and support our consumer products program will actually expand we will have some of our core licensees, who are doing certain parts of our toy business expand into other categories that they are quite expert and we will have our.
Other parts of our consumer products business expand as well as the geographic footprint now that we have a team that's married up between that Hasbro experts and our historical eat one experts and some do.
Blood as well.
I think we get a much more robust consumer product programs. We're also seeing incredible new you one content as Deb mentioned, the animation and continued over the Covid period, we're able to produce animation and distance and so youre going to see a lot of new content that is really.
Really engaging for our audience, where couple of debt capital is a top viewed show on almost every format, including Youtube.
And they are bringing bespoke new content that ties directly to the play patterns are being expressed.
<unk> as well as our consumer products.
And over time.
Beyond the holiday this holiday period, we will have Hasbro product in the market for this holiday period, as well as new consumer products.
We'll come in for the fall so both of those things happen.
That considerable revenues as an opportunity.
The opportunity of course is to go beyond that.
A few fold and then several fold and really one of the pieces of opportunity that we saw from the very beginning as we began to talk to you one.
As a growth in preschool, particularly around character and story and hasbro's opportunity to be a major player and the preschool arena.
Around.
Great storytelling, great character and great.
Nation tied all together and we're seeing that and then in addition, you. One has also been fully and development and has great support for some new IP that I won't.
Talk about now let them talk about later.
And we will have new IP from these.
Storytellers and preschool and lifestyle space and that should grow on a presence.
Ross the dimensions I've just discussed as we go forward.
Great. Thank you, Brian and debt for all that detail and was really helpful.
Yeah.
The next question comes from the line of Tami Zakaria with Jpmorgan. Please proceed with your questions.
Hi, Thank you so much for taking my question and.
So my first question is around E. One.
Ah I think media you mentioned you on could generate revenues.
And and and.
The 2019 range, it's all before Covid happened.
I think and correct me, if I'm wrong, but I think at that time and 2019 media TV related revenues from me one worry about 1 billion. Excluding the family brands. So is it sort of that is that the right benchmark to think about in terms of revenues from <unk> and 'twenty 'twenty one.
So, yes, I think that you're probably looking at if you took all of the one and 2019. It was about $1 2 billion and you're right. There's a family brand component, but we say as we look at the totally one effort, including family brands as well as there.
And what because what they get for content and family brands as well as what they were able to deliver and TV and film we think that $1. Two is a pretty good marker for 'twenty and from from 2019.
To be compared with what we expect we could achieve for 2021.
Got it so that's including the family brands revenue as well.
Correct remember family brands and the revenue comes in and a couple of different places. One is we get paid for the content. So that is expressed within <unk> revenues. We then are taking on board some of the toy lines. Both toy line revenues will get expressed within the consumer products or toy and game part of the business as they become toy lines.
For the company, but yet there's and you on revenue and Deb do you want to comment.
And I just wanted to point out on <unk>. It was actually in today's press release, we did have the pro forma breakdown for 2019, if that might be helpful to refer back to I think it's on the very last page you might not have quite gotten there.
Got along from a long really it was a long relief.
Got it. Thank you so much and then my second question is I think the guidance bucket. The margin buckets, you provided and the call. It seems like EBITDA me and see some slight deleverage in 'twenty and 'twenty one.
So can you help us.
Unpack that and comment on how much of that is actually a transitory related to COVID-19 and other stuff and you might actually get back into 'twenty and 'twenty two.
Yeah, I think we're gonna give some more color to all the different components of EBITDA, but and as we look at adjusted.
We did say, we expect revenue and earnings to grow and then and adjust.
And basis in 2021 from 2020 levels and.
And there are some components that have you know as we continue to invest and digital gaming for the long term and the revenues that that can bring with us will see depreciation, but we also see ongoing product development cost associated with that ongoing product development with respect to creating innovative placings that Brian.
Talked about where we think the consumer product toy and game business will be for 2021 and comparison to the market. So we see ongoing cost with that but on a top and bottom line basis. We do expect growth in 2021 from 2020, and we'll get into <unk>.
And more of the detailed components that we haven't talked about today.
And on.
Moving on maturity.
Got it Super helpful. Thank you so much.
Our next question is from the line of Fred appointment with Wolfe Research. Please proceed with your questions.
Hey, guys. Good morning, you would called out some challenges during key weeks in December and the prepared remarks I'm wondering if you could just touch on what exactly happens and whether that's corrected as we head into the first quarter.
Sure It really it was just the.
And interesting observation as we look at the holiday, we've probably had a more intense longer holiday and we've had in prior years because of course, the holiday kicked off in October as we all discussed around third quarter earnings.
And there was a ton of promotion and lots of toy orientation, and toy and game orientation during that time and our Pls was incredibly strong in October and November and even into December as we got into just the two weeks right before December and I've seen this express and other consumer products categories as well there was a bit of a pause.
Debt.
And that we saw on some of our businesses I think that it has a bit to do with my rate read some of the macro experts.
Talking on the economic side.
Consumer waiting to see if there were some additional <unk>.
Sex and support it was going to be coming during that period of time, we saw frankly.
And going down of inventories around some of our brands during that time for a few of our key games like I talked about the child products and monopoly.
And also and BOP it on.
Operations and some other brands were R.
Our.
Fill rates did fall during those couple of weeks as we were really right quite ahead of Christmas.
And on.
And nerf, we've seen great growth and Nerf and Nerf was up in the U S and nerf was up.
On the fourth quarter and for the full year and the U S. But we didn't have enough product to make.
Everywhere, we expect <unk> to grow and 12 21, because she and a compilation.
<unk> of all of them and our initiatives, but again I just think there were a few places where.
We had a bit of temporary and a little bit from the consumer and then a little bit on a few of our product categories and not a lot but a few.
And then if you take the comp during that time, most importantly, the comp during that time.
POS was slightly down.
If you exclude frozen remember a year ago. We told you frozen was the largest headwind.
For the fourth quarter for Hasbro up against and incredible success in 2019, and you took frozen out our Pos actually goes up to mid single digits and growth.
Globally during the fourth quarter. So that's just again and that period of time. So that's why we.
Just described debt then what happened is the Christmas week was very strong weeks. Following Christmas had been incredibly strong and in January we're actually seeing an acceleration I think as people get.
Gift cards, and as people, who werent together for the holidays and presence and.
Other gifting gift cards and other formats, we're just seeing an immense amount of consumption of Hasbro brands and products lots of strong launches coming.
As we move our way through the first quarter. So that's why I say, it's a broader longer holiday season, and clearly given COVID-19 and open openings and closures.
The demand and some additional description.
That makes sense and then just quickly on the eve on synergies I think you guys called out $30 million last year. The number that we had previously was 35 to 40 by the end of 'twenty, one and so was it just a pull forward of cost savings or is there actually some incremental upside to that $130 million target.
You guys have talked about and the path.
I think we and you know we look at that 130 million target by the end of 2022 and still that's our target right now, but we were able to accelerate some of the cost savings.
If you.
Into 'twenty and 'twenty, just because we're all working remotely.
We're mostly and we could get things some of the things down a little bit faster I mean, like Brian mentioned and I like liver fully integrate our consumer products licensing teams.
However, there is still some other groups that we haven't been able to fully integrate that we're working on and we just it was not in our original timing, but two thirds of that was actually coming from product and sourcing so that timing hasn't really changed yet we're beginning to and so our SAP product.
And this fall for this holiday season, and so we'll have a better insight to whether to grow that number and not as we progress through 2021, but it was a bit of and acceleration.
But if you look at 2021 that we're going to have as much sizeable number than your expectation of $30 million and 2021 that wasn't that's not our expectation for 'twenty and 'twenty, one it's big it's far bigger than that because again and the insourcing begins for the.
Toy and game products, and we'll size that for you probably a bit more and.
And our Investor call.
Great. Thank you.
Yes.
Thank you. The next question is from the line of Devon and <unk> with Bank of America. Please proceed with your questions.
Thanks for taking my question just another one on E on.
Across the industry, both early and later television and film Windows are increasingly being monetized and consolidated on DTC platforms.
And as more Hasbro IP begins to make its way to the E on content engine.
What are you thinking about the various distribution channels and.
Windowing strategies that you can utilize and <unk>.
And sort of optimize your return on investment for both film.
Film and TV Ultimates and on the consumer products piece as this trend continues.
Yeah, well look on where we've said all along that we thought we were entering an era of debt would be right for opportunity for us as we came together with and you want and we're seeing that.
Clearly as many studios have also launched their streaming platforms, they need great content and they're using their own brands and IP to service for their own and streaming platforms.
Which leads a lot of world class streamers and other platforms open for.
Our business and looking for World class IP from from people like companies like Hasbro and you want is expert at developing it for.
A global group of broadcasters and streamers linear and terrestrial so we see a real opportunity.
Mary's directly to the fact that we have the broadest portfolio and our business and.
We have brands that stretch from kids and fans and families certainly, but we also have brands that stretch into great adult gaming and lifestyle gaming. So we're busy developing.
And as and Dragons across and our number of dimensions.
Future iterations of Transformers, and a number of different places.
We have new creative stewardship that will add half and great new storytelling and power Rangers and and several other big Hasbro IP areas and I'll, let the team talk more about that later this month, but we see the opportunity to go through multiple windows, we still do.
See the opportunity.
To have a theatrical followed by a scream window or simultaneous window between streaming and theatrical and a shorter theatrical window I think a lot of.
Nomenclature and conversation around all of those windows are shifting and changing as we speak and our team is expert at ensuring that around the world.
The opportunity do a venn ties our properties and programming with streamers and theatrically and then move through the waterfall of opportunities of Windows.
So that we're able to maximize the return on the entertainment investment while also driving ubiquity for the story and character and the play patterns.
And you reflected and the consumer products and the gaming that we're executing and support of those initiatives.
Great and could you provide and update on where production stands today relative to normalized levels and how we should think about the cadence of the $675 million to $750 million and cash content spend for 2021.
Sure well, we're working in production now and most territory and actually all territories were up and running some things may get delayed.
And depending on what's happening on the site and everything is up and running now one of the things that's really important to remember I'm glad you asked about cadence because you think about before the world changed in March of last year.
And we actually had a great hit and 19 seven tool from a one so that really drove a big impact to the first quarter of last year. When you kind of think about the theatrical still being opened and.
So now as we look at the cadence we see it progressing from alethia.
You know and as you know I know Devon.
And the entertainment and revenue recognition could be a little I use my favorite accounting term, Brian laughs at me when I say, there's still a little lumpier.
And then what you might see and traditional toy and game business, but we just look at the fourth quarter and when everyone was able to get up and get into production and have that those deliveries being made and they were able to grow revenue.
And we see that with and impact in the near term because of something like 1917 and theatrical distribution, but as Brian said, we're excited about being able to take advantage of theatrical and as well as streaming by providing them with great content over time.
Thank you.
Our next question is from the line of Gerrick Johnson with BMO capital markets. Please proceed with your questions.
Hey, Good morning, you know I like going last so thank you very much.
And how many questions from I guess, Brian I would've been.
I'll ask Eric and good morning.
Okay, I've got quite a few on.
And now I'll briefly can be here.
First just the outlook for 2021 from the toy industry, David asked that before I don't think you gave an answer for the industry itself. So how about like and two numbers international and actually worldwide and U S.
Well look I think that number is shifting around and we saw and early number from NPD that frankly, we didn't understand as well and we're hoping that they will clarify a bank debt. According.
According to my team working on going back and we're looking at that number because I thought it was a bit.
Too low.
And.
I think they are kind of reconsider and given what we're already seeing and January window, and the fact that consumers are continuing to be very interested and toy and game industry. So that's why I didn't give you a number because I'm kind of waiting for the combination of NPD and euro monitor to re evaluate where.
And they think the market is what I will tell you is.
We believe we can grow our toy business over time in line with or ahead of the industry because of our capabilities and the fact that we built such robust capabilities and E comm and content and storytelling and innovation and it could be the orchestration between all the different operating elements that we should be able to.
To be in line or better than the industry and I've also said that over time, we believe that should be.
And the tough year low, but in a good year mid single digits and growth.
So what was the on P. D number that was put out earlier that youre not sure that's correct.
I'm not going to lie I need to let let them comment because I'm not sure whether they published it out or without and subscribers, but they were having conversations with my team.
Estimated that the team felt they should go back and re evaluate and I think they are given the fact that we are.
Such robust growth early in the year I think there and.
Incidentally are you considering what they might put out is on projection for the full year.
Quarter on quarter through 'twenty one.
Look I said, we think and a year, where we have great innovation and we have the unlock we expect to grow our toy and games business. This year and we believe will be.
This year and we believe it will be in line with or ahead of the industry, depending on where they land, but you know again I've said around mid single digits.
<unk> is in a good robust years, where we should be able to deliver toys and.
<unk> growth.
Okay, Okay fair enough moving on Q2 Entertainment, but third party entertainment product you do for others.
I have 10 out of 10 movies baked into my model from your view in 2021 not sure.
Gonna happen I have 300 million costs and incremental revenue from those 10 movies. So I'd like to know what movies do you think will actually happen.
It happened and whether there's some big ones like snake eyes, Spiderman and van on Micron on its gorilla Shanxi Goosebumps too.
Whats happening this year do you know, what's going to happen or does anyone know, what's going to happen and movies. This year.
Well look I think that the big considerations and it's not surprising to hear the big considerations will be what happens, particularly during the first half of the year.
And I think that people feel there'll be an inflection point sometime this summer.
Fall, where more moviegoers will be back into theaters, having said that we're working in partnership with our partners at Disney there.
Actively looking at all the windowing and I think you've started to see like last night hopefully on that football games you saw the.
Trailer for Ray on the last drag and I think it was great and we're very excited about that and May movie Black widow will be supporting Ghostbuster, Wisconsin June got than him later in June Cheng. She is right now scheduled for July we've got are on my little Pony movie coming.
And the September window Snake eyes is slated for October and then you have eternal and spiderman and that will be in the fourth quarter and.
The team is actively working on.
And on a regular basis some of those and maybe more.
Shorter theatrical windows, we talked about the fact that that's what that works, particularly workplace.
On a.
Premeditated basis, where the strategy could be put out up and front and we can work with our retailers and then Gary.
And I can also mention that there's a lot of streaming content that will be coming that we also feel has a great opportunity and particularly we were talking earlier just about the robust nature of the Marvel brands and business and so <unk> is also a stream piece of content that will come and March one division.
And the winter soldier, if that was a great trailer and then you have a couple of different.
New Star Wars initiatives coming for streaming.
And the back half of 2021. So the team is around all of that they have been building great innovative products.
Or <unk>.
All exploitation, there as well as for Hasbro IP like my little Pony and for a snake eyes, and we constantly are working in partnership with our studio brother and to ensure that we understand the way they want to execute their programs and frankly, we're doing the exact same thing with my little Pony and whats snake eyes.
We want to make sure we're maximizing the opportunity given where we believe audiences will be at that on a year and I think at that at this point.
And the high sign that we need to wrap things up and maybe there's one last question you might have.
Oh, Okay, and hopefully we can see this movie movie theaters, and I'm, particularly looking forward to micron on.
As you know okay. If I have on more let me go back to something Scott and Mike both asked on Pep and P. J.
And what what's the synergy on an annual run rate, let's talk like 'twenty, two or something like that.
With those brands and house, what kind of synergies to the bottom line and can you get from bringing those two and house.
So we said that we expect $130 million, just finishing inc, which include on.
Bringing a pepper and P J and house as well and two thirds of our cost synergies were made up from product and sourcing that of course doesn't impact me on.
To me that we're seeing from a revenue side as we create more innovative product and.
And drive revenue around other consumer product streams around that but that that is that's and that number does include capex and P. J. So okay. Okay alright.
Alright, thanks, guys calculate and thank you.
I'll now turn the call back to Debbie Hancock for closing comments.
Thank you Rob and thank you everyone. We appreciate everyone joining the call today, the replay will be available on our website and approximately two hours. Additionally, management's prepared remarks will be posted on our website. Following this call.
We hope you'll be able to join us on February 25th for our virtual Investor event. Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.