Q4 2021 Hasbro Inc Earnings Call
Good morning, welcome to the Hasbro fourth quarter and full year of 2021 earnings conference call.
At this time, all participants are in listen only mode.
If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.
Today's conference is being recorded.
If you have any objections, you may disconnect at this time.
At this time I'd 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 Chris Cox Hasbro's incoming Chief Executive Officer, Rich Stoddart, Hasbro's interim Chief Executive Officer, and Deb Thomas, Hasbro's Chief Financial Officer. Today, we will begin with Chris, Rich and Deb, providing commentary on the company's performance then we will take your questions.
Eric Nyman, Hasbro's incoming president and Chief operating officer will be joining us for Q&A. Our earnings release and presentation slides for today's call 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. 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 follows 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 in these forward-looking statements. These factors include those set forth in our annual report on Form 10-K, our most recent 10-Q in today's press release and in 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 Chris Cox.
Thanks, Debbie and welcome everyone joining today. I'm thrilled to be starting as Hasbro's CEO later, this month and overwhelmed by the outpouring of well wishes from employees partners and stakeholders since the announcement.
The positive response is a testament to this amazing company and the wonderful people, brands and fan communities around the world that make it so special.
As we are unique in our ability to create cherished childhood memories that translate into lifelong favorites.
Our brands and toys that inspire wonder to collectibles that showcase fashion.
Board games that bring families together to gaming systems with thriving global fandom.
And animation that delight children, the feature films and video games that engage audiences of all ages.
As CEO, I'll be working with our team focused on three long term priorities.
First and foremost is driving growth with the brand blueprint. At the heart of Hasbro is the brand blueprint.
It enables us to expand the value of our brands and capabilities as we engage our fans across all aspects of play and entertainment from consumer products to games to streaming TV shows.
Executing through our owned and operated assets and the best partners in the industry.
We've seen significant success with this strategy with brands as varied as Peppa Pig, Transformers and most recently My Little Pony.
And I'm excited to as the extended benefits to more brands from play Doh magic the gathering to our upcoming blockbuster movie and AAA video games with Dungeons and Dragons.
Our next focus area will be multi generational fan engagement.
Play isn't just for kids anymore.
It's a lifelong pursuit.
Gen Z's favorite brands are the ones they play with. That surround them with engaging experiences and millennials and Gen Z aren't far off.
We are creating on the media play and entertainment that spans age ranges, connects people together and has passed along generation to generation.
Lastly, new growth opportunities. Specifically [games and] direct.
At $2.1 billion and 19% year over year growth, Hasbro is one of the biggest and fastest-growing gains publishers in the world.
Our investments in digital and direct to consumer gives us an amazing opportunity supports tighter relationships with our most valued customers to learn from them in real-time via cutting edge data analytics and to reinvent, how we bring product to market and customize it for our most passionate fans.
While the whole blueprint generates immense value for Hasbro look forest with particular focus on these fast-growing businesses as we take our portfolio to the next level.
Underlying these priorities will be a laser focus on capital allocation.
Underlying these priorities will be a laser focus on capital allocation.
How we invest in the business, prioritize our brands and drive total shareholder return.
While paying down debt, maintaining an investment grade rating and returning cash to shareholders.
We'll be sharing more insights about how you will drive our blueprint strategy, extend our fan engagement and grow our gaming and direct to consumer assets in the quarters to come.
Underpinned by a strong sense of purpose and commitment to our planet and people.
In the meantime, my focus will be squarely on partnering with Deb, Garen, Cynthia and Eric on executing with excellence to deliver our growth plans as well as meeting with the stakeholders to help make Hasbro Hasbro.
I want to end with a special thank you to Rich Stoddart.
Rich came onboard five months ago after the tragic loss of Brian Goldner, our beloved leader of nearly 15 years.
Using uncommon care.
A natural insight from his time, serving on our board and strong and steady leadership.
He helped guide us to exceptional results.
Rich, your insight and leadership will be amazing assets as the new chair of our board of directors and I'm looking forward to working with and learning from you as you grow Hasbro in the years to come.
Thank you, Chris.
The global Hasbro team finished the year strong delivering full-year results above our guidance.
Including 17% revenue growth, a 40 basis point improvement in adjusted operating profit margin.
23% growth to $1.3 billion in adjusted EBITDA.
And over $800 million in operating cash flow.
Deb and I are very proud of the Hasbro team.
And all they accomplished in the past several months.
Throughout the year and especially in the fourth quarter, we successfully navigated supply chain challenges across the business.
Delivering another record year for Wizards of the Coast.
Growing consumer products revenue for the year and fourth quarter.
And achieving robust content deliveries above 2019 levels in our entertainment business.
The brand blueprint strategy is driving profitable growth.
Across our diversified portfolio.
And Hasbro's unique set of strategic assets provide the foundation for maximizing the value of both our existing franchises.
And new IP.
We have and are investing significant capital around the blueprint.
Expanding and growing our powerful gaming portfolio, including in Magic the Gathering and Dungeons and Dragons.
Building deeper and more valuable brands.
Telling compelling stories to global audiences.
And in developing our talented teams.
Our commitment to disciplined strategic investments over the long term has built a differentiated business with diversified capabilities to drive profitable growth.
And enhance shareholder value.
This is evident in our performance last year.
First, gaming.
Gaming.
With a portfolio of $2.1 billion grew 19% Hasbro's gaming portfolio is among the biggest most profitable and fastest-growing combinations of gaming brands across face to face.
Table top and digital platforms in the world.
It's led by Magic: The Gathering. And 2021 was Magic's best year ever.
Over the past five years, we've invested close to $1 billion to drive 150% growth.
In high margin revenue and position us for growth in the coming years across tabletop and digital gaming.
These investments are meaningfully expanding our tabletop products.
And creating best in class digital game capabilities.
While recruiting and retaining world class talent.
We are very excited to have Cynthia Williams joining us later this month from Microsoft.
As president of Wizards of the Coast and digital gaming to lead this team as Chris transitions to CEO of Hasbro.
Chris orchestrated a tremendous period of growth and expansion for Wizards and has invested to position the business and team for continued success.
The consistent growth of Magic is a testament to the long term durability of our strategy.
Led by doubling down on collectibility.
Expanding the magic product suite to maximize relevance across consumer segments.
And giving players exciting and compelling world to participate in.
In digital, Magic: The Gathering arena as launch on mobile has been impressive generating significant growth with continued high engagement from our players of around nine hours per week.
The launch of mobile more than doubled our prelaunch monthly average users at its peak.
It has since settled into a sustained 50% increase in our average monthly active users as mobile has become a key way for our fans to access their favorite strategy game.
We have only begun to unlock the value of the digital gaming potential of the Wizards brands and capabilities of the team.
In 2021, digital gaming revenue, including the high margin license digital gaming business grew 36% and represented 26% of this segment.
Tabletop gaming revenue represents the largest piece of the segment at 74% of the total and grew 44% for the year.
We have significant plans to leverage the power of Wizards of brands across the blueprint for both current fans and to expand our reach to new players and fans.
This begins with Magic: The Gathering Netflix series coming later this year.
And in 2023, the planned theatrical release.
Of the Dungeons and Dragons feature film.
Furthermore, these upcoming releases will harness the full potential of our brand blueprint.
With a comprehensive sales and marketing plan across our organization, including special edition tabletop and card set releases.
Digital game, our robust Hasbro toy line and expansive license consumer product.
Digital game, our robust Hasbro toy line and expansive license consumer product.
Our robust Hasbro toy line and expansive license consumer product.
Our many years of investment in these brands and building assets to drive growth around the blueprint position us to leverage them in bigger and more powerful ways for years to come.
Last year also marked the successful relaunch of another iconic Hasbro franchise brands.
Led by the expertise of the eOne team. My little Pony and new generation drove the My little Pony brand through the animated feature film.
That was number one in the Netflix kids top 10 in more than 80 countries on opening weekend.
Driving high viewership and audience engagement.
The film fueled greater than 100% growth in toy and game point of sale in the fourth quarter versus last year and double-digit growth in licensed consumer product for the year.
With a significant multi-year content road map led by eOne, and a deep and innovative merchandise programs.
We believe My Little Pony is positioned to reclaim its place as a leading global lifestyle brand through expansive blueprint activation.
Peppa Pig and PJ masks are further examples of valuable brands for which the combination of Hasbro and eOne is accelerating the growth and opportunity.
In August, we launched the first Hasbro toys and games for these leading preschool brands.
We had a very strong first few quarters in the market and have gained share increase school toys.
Peppa Pig was one of our top brand growers last year and as we shifted licensed revenue to in source revenue and toys and games.
The team was still able to grow license consumer products revenues double digits, highlighting the powerful reach of Peppa Pig across categories.
In recognition of the relevance and success of the brand combined with the opportunity ahead.
We have elevated peppa pig to a franchise brand and we will begin reporting this with our first quarter earnings.
It is a clear indication of the potential value of this brand we acquired with eOne.
As we think about powerful brands our partner brand portfolio is activating some of the most valuable entertainment brands in the industry.
We grew partner brand revenue 8% last year with significant growth in Hasbro products for the Marvel portfolio led by the Spider-Man franchise, including products in support of the feature film Spider-man: No way home.
And the animated new show Spidey, and his amazing friends.
And the animated new show Spidey, and his amazing friends.
We also grew revenue for Hasbro's line of Star Wars product.
Despite a strong fourth quarter last year with season two of the Mandalorian.
We recently announced an extension of our Star Wars license.
And are excited to have added the Indiana Jones franchise with product in the market next year supporting the theatrical release.
Hasbro is proud to maintain a strong connection with the Walt Disney Company.
The creator of some of the most celebrated an everlasting entertainment franchises.
And looks forward to continuing its storied relationship with new product lines for Star Wars, Indiana, Jones, and Marvel, including Marvel's Avengers, and Marvel's Spiderman in the future.
In addition, we have exciting initiatives with new and expanding partners as diverse as Fortnite to roadblocks.
And we see a bright future for our partner brand portfolio with higher profit growth in the mid to long term.
Finally, while I've highlighted several entertainment successes that are driving brands today and in the future.
The entertainment segment had a very successful year.
Delivering revenues above 2019 levels when adjusted for the music business, which we divested during 2021.
With amazing shows like yellow jackets, Cruel Summer, Graymail and the rookie.
And the return of film deliveries, including Clifford the Big Red Dog and Finch.
The eOne team delivered compelling content across platforms.
Importantly, eOne has been focused on developing a strong pipeline of content or Hasbro brands and we've seen an incredible response from the market.
In 2021, we started to see that pipeline converted into green light.
Production and releases to be activated across the brand blueprint.
In closing. It has been a true honor to work with the Hasbro team as interim CEO.
It has been a true honor to work with the Hasbro team as interim CEO over.
Over these past several months.
The entire Hasbro family has my deep gratitude.
For their tremendous focus on delivering at a high level.
I, especially want to thank Deb Thomas for her strong and steady leadership during such an important time.
For her strong and steady leadership during such an important time.
This year's results position Hasbro for continued growth.
And to continue driving shareholder value.
With consumers brands and storytelling at the center and purpose at our core.
We have made and are making significant investments across the business.
And in our people to drive capabilities insights and innovation to support our long term growth.
I am excited to see Chris and Eric take on their new roles later this month.
And confident that Hasbro will thrive under their leadership.
I'll now turn the call over to Deb.
Deb.
Good morning, everyone.
As Rich said, we're incredibly proud of the performance by the Hasbro team over the past several months to turn on an outstanding year.
This includes full-year double-digit growth in revenue operating profit earnings and adjusted EBIDTA.
We grew revenue across segment brand portfolio.
And geographies.
Wizards in digital gaming had its best year ever.
Doubling the size of the Wizards business two years earlier than anticipated.
We further the integration of eOne and launching new increasingly Hasbro brand-led content campaigns as well as Hasbro's line for Peppa pig and PJ masks.
We further the integration of eOne and launching new increasingly Hasbro brand-led content campaigns as well as Hasbro's line for Peppa pig and PJ masks.
We remain on track to achieve the $130 million run rate of cost and in sourcing synergies by the end of this year.
We strengthened our balance sheet paying down over $1 billion in debt.
Net.
Ending the year with over $1 billion in cash. And after reducing our debt to adjusted EBITDA last year by 1.7 times to 3.1, we are on track to hit our target of two to two five times by year-end 2023.
And we invested across Hasbro to profitability grow for the long term, while returning cash to shareholders, including a 3% increase in the quarterly dividend announced today and effective with our next dividend payment in May.
Our 2021 result and current year outlook support our view to growth and value creation over the coming years.
For the year revenue grew 17% year over year, and 8% versus pro forma 2019.
Magic: The Gathering, Nerf, Peppa Pig, My Little Pony, Transformers, and Hasbro products for the Marvel portfolio led year over year growth along with a return of entertainment production and deliveries, notably on TV streaming and animation.
The Wizards of the coasts and digital gaming segment had a phenomenal year growing revenue, 42% operating profit 30%.
Ending the year with an operating profit margin of 42.5% and adjusted EBITDA was higher by 36%.
We have success in both tabletop and digital gaming led by Magic: The Gathering and Dungeons and Dragons.
We have significantly invested to drive these brands for current and future growth.
Consumer products segment revenues grew 9% year over year.
Robust demand for Hasbro products strategic pricing actions and significantly improved execution in markets like Latin America, and Asia drove a 170 basis point operating margin expansion more than offsetting the higher freight and input costs.
As well as supply chain challenges incurred during the year.
Adjusted EBITDA grew 18%.
Adjusted EBITDA grew 18%.
The team manage supply and delivered strong revenue growth, but our product in stock levels lower than target.
Part of this was due to demand above our plan.
And part due to continuing supply chain disruption.
To help us maintain consumer products segment operating profit margins at or above 2021 levels.
We have price increases scheduled to take effect in the second quarter to offset the anticipated continuation of supply chain challenges and resulting higher input and freight costs.
Entertainment segment revenue increased 27% for the year exceeding 2019 pro forma levels of revenue when adjusted for the sale of the music business.
Adjusted operating profit grew 13% and adjusted EBITDA increased 76% for the full year 2021.
Adjusted operating profit increased due to higher revenue and lower administrative costs, partially offset by higher program costs amortization associated with more deliveries and mix of content and higher overall costs related to COVID-19.
Overall adjusted operating profit grew 20%.
And operating profit margin expanded on a favorable mix of revenues, strategic pricing, which partially offset higher costs. At the same time investing in product innovation and advertising behind brands and entertainment.
On a reported basis, other income expense net included a $54 million pre-tax noncash nonoperating charge associated with our investment in the discovery family channel.
The pandemic has accelerated changes in the cable distribution industry and networks have seen a decline in linear subscribers.
During the over 10 year life of our investment, we recorded more than $1.1 billion of merchandise revenue related to Hasbro programming on the channel averaging more than $100 million per year.
Since reducing our ownership from 50% to 40% in 2014, we have recorded approximately $130 million of non-operating investment income or an $18.5 million dollar annual average.
This investment has delivered a strong return for Hasbro.
Turning to tax.
The full-year underlying tax rate absent non-GAAP charges and discrete items was 21.3%.
The lower adjusted rate of 15.8% was the result of favorable discrete items from audit settlements synergies from the integration of eOne and tax planning.
For 2022, our underlying rate absent non-GAAP charges and discrete items is expected to decline to approximately 25%.
With an adjusted rate expected in the 18% to 20% range as we do not predict the same level of favorable discrete items, we had in 2021.
As I said to start.
Our balance sheet is strong.
Accounts receivable increased 8% versus 17% revenue growth as collections remained strong.
After declining 17 days last year, DSO declined another six days to 60 April with improvement across Hasbro led by our entertainment business in international and commercial markets.
The inventory we had at year end is very high quality.
Our aged inventory is well below historical levels, but the levels we have on hand and at retail are higher than last year.
From both owned and retail inventory. This reflects a significant increase in the amount of inventory in transit as lead times from China have increased about three times on average.
Hasbro owned inventory also reflects higher freight and product cost.
These higher capitalized costs are expected to have a negative impact on gross margin in the first quarter prior to price increases taking effect.
For 2021, we reported an adjusted EPS of $5.23 per share.
$5.23 per share.
As you think about 2022 EPS.
I want to walk through several items. First, as a reminder, in the first quarter of 2021, we realized a non-operating gain of $25.6 million from a legal settlement.
This translated to 19 cents per share in Q1 2021, and this will not have a comp in the current year.
Second, we sold the [eOne] music business in Q3 of last year.
This represented $65.2 million in revenue and $16.9 million and adjusted operating profit during the first half of 2021, which would equate to approximately 8 cents per share on the full year.
Okay.
Finally. Following Brian's passing.
Following Brian's passing.
There was an accelerated contractual vesting of certain equity awards in the fourth quarter.
Diluted share count is expected to increase from $138.4 million for the full year 2021.
To approximately $141 million for full-year 2022 on a weighted average basis.
As we look ahead.
We're investing today to build bigger more powerful brands around the brand blueprint.
These investments are an innovation.
In capability, in storytelling and in our people.
Coming off a year of double-digit revenue and operating profit growth. For 2022, we expect revenue and adjusted operating profit to grow in the low single digits and deliver operating profit margin expansion as well as operating cash flow in the range of 7 to $800 million.
$100 million.
Adjusted EBITDA is expected to be in line with the $1.3 billion achieved in 2021.
Looking at our segments, in 2022, we expect the Wizards in digital gaming segment to grow in the mid-single digits.
We continue to invest to grow this high return business over the near and the long term.
Over the medium term as we expect to see acceleration beginning in 2023, we're targeting compound annual revenue growth in the high single to low double digits and operating margins to remain above 40%.
The toy and game industry has grown at an above-trend growth rate the past two years, and we expect that to slow or decline in the coming year, but we are well-positioned with new initiatives.
And great content.
We believe we can continue to grow the consumer products segment to innovative brand campaigns, including a full year of Peppa pig and PJ masks.
Continued growth in my little Pony as we accelerate around the blueprint. There was strategic and well-placed content roadmap from eOne supporting merchandise plans.
And new entertainment for key partner brands like Marvel and Star Wars.
While our rights expire for Disney Princess and Frozen at the end of 2022, we are very excited about our continuing relationship with Disney for Marvel, Star Wars and
Indiana Jones and the product offerings around these brands.
The Disney Princess and frozen business has averaged approximately $250 million in revenue per year for Hasbro, peaking in 2019 with the last critical talent.
We expect to grow our consumer products segment revenue in the low single digits in 2022, as we execute the rich and valuable portfolio of Hasbro and partner brands and increasing to a mid-single-digit growth rate over the medium term.
Including greater operating profit margin expansion in 2023 and beyond.
And beyond.
In the entertainment segment, with high demand for content as well as theatrical improving, the entertainment industry is expected to continue growing.
Combined with our robust entertainment slate, we anticipate 2022 growth in the entertainment segment in the mid-single-digits absolute music business, which was sold in 2021.
Combined with our robust entertainment slate, we anticipate 2022 growth in the entertainment segment in the mid-single-digits absolute music business, which was sold in 2021.
As we activate more Hasbro branded content.
We expect revenue to grow in the high single to low double digits over the medium term with higher growth in operating profit and adjusted EBITDA to drive margin expansion.
Our cash spend on content for this year is expected in the range of 725 to 825 million to support content development and delivery over a multi-year period.
Notably, we're planning significant initiatives executed across the brand blueprint and consumer products in Poland and entertainment.
Including feature films for Transformers rise of the beasts and Dungeons and Dragons that are expected to accelerate revenue.
And operating profit growth in 2023.
For the medium term, in 2024.
1024.
We expect revenue growth in the mid single digits on a compound annual basis.
Each segment has strength on its own.
But as we have seen over time.
The greatest return comes from the broad portfolio that is part of our brand blueprint strategy delivers greater value.
Importantly, we expect the financial benefits of our combined capabilities to grow overtime.
By year-end 2023, operating profit margin is expected to exceed 16% and operating cash flow should reach approximately $1 billion.
In closing.
Long term investments in our brands and capabilities have built a differentiated business with diversified capabilities to drive long term profitable growth.
And enhance shareholder value.
These investments have benefited not only 2021, but are designed to benefit in years to come.
After delivering a high quality year.
We're positioned for further growth in 2022 and on track for greater revenue growth and greater operating profit expansion in 2023 and beyond as we leverage our investments in building brands and capabilities across the brand blueprint to drive profitable growth.
For the long term under a strong leadership team.
Thank you.
At this time, we'll now be conducting a question and answer session. If you'd like to ask a question today, please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue.
You may press star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
So that we address questions from as many participants as possible. We ask that you limit yourself to one question and one follow up. One moment, please while we pull for questions.
Thank you and our first question comes from the line of Steph Wissink with Jefferies. Please proceed with your question.
Thank you. Good morning, everyone. Chris, I have a question for you and then one clarification. Chris, my question is really regarding your number three initiative from your prepared remarks, the gaming in DTC strategy.
I'm hoping you can connect those to some of the growth targets that Deb just laid out. I think she mentioned for whether it's in gaming the expectation was high single to low double-digit growth. So maybe help us think through the DTC component of that and just remind us how much of the business is DTC today, if any at all.
Well so on games when we look at.
2023 and beyond.
We look at continued growth in our tabletop business consistent with our historical norms and we look at a robust slate of new digital games that will be coming to market.
As we've talked in the past, Steph, digital tabletop, which is kind of an extension of our core games as well as extensions into more traditional video game categories like roleplaying games, action-adventure and strategy. And so we will be sharing more details about that.
Over the next several quarters and we expect some significant growth from those initiatives as we have been putting in significant investment in them.
On direct to consumer, we have a variety of direct to consumer initiatives across the company.
Wizards of the coast and digital games drive several of those we would consider arena to be an example of a direct to consumer business, because we run that service and primarily adjudicate payments through our own.
Proprietary means. We also have our secret layer business, which has grown significantly over the last several years for Magic. And then im going to turn I think the second half of the question over to Eric Nyman who can talk a little bit more about what we've been doing on the consumer product side with Hasbro pulse, which has also had tremendous growth. Eric.
Thanks, Chris.
I think you know our Hasbro pulse business, we don't disclose that amount for the pulse, but we have seen great growth.
We did double it again in 2021, we have some incredible new announcements coming in 2022, and we look forward to sharing those with you in the upcoming months.
Great, very helpful. And then Debbie, I wanted to just go back to your comments on comparability.
In the quarters in 2022. I am recognizing you have some one time items that won't repeat but also can you help us just think through maybe in semesters if you'd like versus quarters. How to think about the first half versus the second half. I know June was an unusual comparison with a few things in that quarter, specifically, so just help us think through maybe the sequencing.
Of this year for our models. Thank you.
Sure. So absolutely, you know, let me just start with the entertainment business. As you know entertainment is so dependent on when deliveries take place right.
So I would think a little bit about that similar to the cadence of 2021 from an entertainment standpoint.
As you mentioned June was a big quarter. The second quarter was a very big quarter for us and Wizards of the coast in digital gaming and also we have some exciting initiatives in consumer products as well. So as I think about the year, I think the most difficult comps for us this year.
From a cost standpoint are really in the first quarter, we've got high capitalized freight and input costs and as we mentioned our price increases don't take effect to cover some of that until the second quarter. So if you think about cost pressure standpoint, it's really the first quarter and from a comp standpoint.
Given the success of Magic: The Gathering in the releases that we have planned this year, really the third quarter is going to be a bit tougher as well. We had some digital that launched and went into that third quarter.
And an extra relief with the same number of tabletop releases this year. We just don't have that extra digital release that we had in 2021, so as I think about comps in the first quarter in the third quarter or are a little bit tougher comps and then the rest of the year.
Very helpful. Thank you. Congrats on a good quarter.
Thank you.
Our next question comes from the line of Eric Handler with <unk> Partners. Please proceed with your questions.
Good morning, and thanks for the question.
Yes, but wonder if you could dig in maybe a little bit on the entertainment side of the business again.
As we think about.
Where the growth is coming from in the business in 2022 could you maybe give us a little breakdown of live action television versus movies versus animated programming, we're are going to be.
Sort of like the puts and takes for those segments.
How much of the business is coming from frontline versus catalog.
Sure Eric.
As we kind of look out over the business you know we had a great year of deliveries and we saw a theatrical start to come back in 2021 still wasn't anywhere near the levels of pre pandemic.
It's starting to come back so as we think about deliveries moving into 2022, we do have a few movies that are scheduled to be delivered we have a couple in the early part of the year for me one and one in the later part of the year its still in production right now.
And we think as we move into 2023, obviously that will be a bigger year as we did production dungeon.
Dungeons and Dragons with our partners at Paramount and Transformers rises of east. So those will be out in 2023 as long as movies from our part as well as moves from our partner at Disney and Marvel Guardians of the Galaxy and Indiana Jones, and the New Star Wars movie, So very excited about moving into 2023.
And then our partners at Disney later in 2022.
With Doctor Strange Tolar Spiderman and.
Of course, we're all excited for Black Panther, and what kind of forever coming in the fall. So as we think about our entertainment business, we have that but we continue to.
To distribute live action content.
Have many unscripted and scripted television or streaming.
Coming out throughout the year. So much of that is dependent on deliveries, which is why I said earlier, if we try to think about the delivery and the cadence being similar to 2021.
Just from a delivery standpoint.
That will continue to come out.
As we go through it from an animated standpoint, we have magic the gathering coming in the fall.
Are you excited about that as well and we have more deliveries from for Peppa and P. J, but just as a reminder, in the third quarter of last year, we had the my little Pony movie. So while we have a robust content roadmap coming from my Little Pony go forward that delivery in the third quarter is probably will have a bit of uplift.
On the on the innovation side, which is again why I think the third quarter. It's probably the one that has probably the toughest comp as I think about the year ahead of us from a library standpoint, while we did have some sales of library library in particular.
Doug just done a deal in.
In the Nordic countries to distribute some library content.
The vast majority was from new series delivery of our revenue as we think about the past year.
Okay. Thank you and just as a follow up.
As we think about the Hasbro gaming segment and Thats it.
Stripping out.
<unk> and whatever else is a monopoly that was going to franchise brands.
You have had excellent growth.
Over the last two years is that a segment that probably will see challenging comparisons for 2022.
Yes, so I think thanks for the question Eric.
So look the gaming portfolio is extraordinarily strong and has been a real leader as we pointed out.
We would point you to the $2 1 billion dollar at 19% growth and we've got some powerful brands and Theyre clearly gaming has had some robust.
Demand as we were in a COVID-19 environment, and so very tough comps and yet we're still growing that business and we see.
Great upside for the business go forward.
Okay. Thank you.
Our next question comes from the line of our P&A Kocharyan with UBS. Please proceed with your question.
Thanks, and good morning, and Chris Congrats on the new all we look forward to working with you.
I was wondering if you could talk about current Pos trends for the industry and Hasbro and what is sort of general.
Retail inventory situation I know you alluded to perhaps better retail inventory versus on hand, but just a bit.
More detail would be helpful. And then I have a quick follow up on gaming. Thanks.
Maybe our P&L have Deb take the inventory question first.
Sure. So just from an inventory standpoint.
As we mentioned both our inventory our owned inventory and retail inventory was up a bit at the end of the year and that's really because of inventory in transit and the input and freight costs that are capitalized that.
That inventory now the good part is what's in transit is our new spring releases for magic and for our consumer products business. So it's an excellent quality and.
It is being slightly impacted though by those higher input costs as we think about inventory.
And then our opinion as it relates to Pos. So we did include a summary of Pos in the presentation. So please take a look at that but North America was up low single digits for Q4, and full year and double digit growth maybe back to Eric's point on games double digit growth for games in Q4 International.
Klein and clearly low in stock levels was it was a driver and a headwind for Pos sort of across the portfolio I may ask Eric to just anything you want to add on Pos.
Maybe some highlights thanks rich Athena.
Think about some of the good stories, we had in 2021. Some highlights include things like my Little Pony, which grew more than 100% in Q4 following the movie release.
The Dev enrich both mentioned grew double digits for the full year of Transformers. Pos was up in Q4, which contributed to double digit Pos growth for the year.
Deb mentioned Marvell and <unk>.
Strong partnership model Pos led by Spider Man was up.
Teens for the year, and we add things like Ghostbusters and GI, Joe both which were propelled by theatrical launches, which were up more than 100% for the year. In addition, we had growth in brands like play Doh and for real friends, and Playskool, which increase in.
We also talked about the Pos growth for Peppa pig and PJ masks, which we started shipping in the second half of the year really started seeing Pos in the fourth quarter.
Great great.
Hoping you could add some color on current Pos trends, but just quickly my gaming question.
What is implied for the gaming business operating margin for 2022, because clearly for the full year.
For 2020, you want that business came in substantially above the 39% guidance you had initially given where do you think those margins could get to for 2022.
Sure so absolutely our P&L.
We launched games, we did see the higher depreciation we expect as we talked about we continue investing for that long term growth.
So our higher admin costs reflects hiring people to do that.
And.
We did have that that being said our gaming portfolio overall.
Our gaming Hasbro gaming has high teens low <unk> margin and when you look at our total gaming portfolio.
It's in the low Thirty's operating profit margin. So as we gain as we grow that category and that's why it's important that we said today. Despite the fact that we're growing our gaming portfolio. Overall is continue to expect to have operating profit margins in the low thirties as we go forward.
And our Wizards of the coast and digital gaming segment is expected to not only grow revenue and as Chris mentioned earlier.
In at a greater pace in 'twenty, three and beyond as some of the games that we've been investing and come to market, but we expect that segment to maintain operating profit margins over 40%.
Thank you very much.
Next question is from the line of true Crum with Stifel. Please proceed with your question.
Okay. Thanks, Hey, guys good morning.
Can you remind us.
What the plans are for debt reduction in 'twenty, two and 'twenty three will you be paying down debt this year or is the.
Your aspiration to get to the two to two five times leverage multiple and 23, just a function of improved adjusted EBITDA and then separately you mentioned the noncash charge taken related to the discovery family channel during the quarter.
Given the changes across the cable industry that were referenced can you comment on your commitment to this business and does it make sense to maintain the.
40% stake going forward. Thanks.
Yeah.
Thanks, sure well first the debt to EBITDA question, Yes, we intend to pay down debt this year.
We expect to hit our targets of two to two and a half times through a combination of EBITDA growth as well as debt repayment that being said.
We maintain our capital allocation strategy first and foremost reinvest in the business, we've talked about how some of those investments, particularly in our gaming portfolio have delivered growth of 150% and above and revenue.
We.
Continue to plan to make those long term investments in the business around the blueprint to drive that profitable revenue growth going forward that being said right now those targets are the right targets for US we think given our current projections will have them in 2023.
And you know and that's so that's how we look at it but it is a combination of debt pay down additional debt pay downs as well as EBIT dollar growth.
With respect to the investment in discovery family Channel listen it was a great investment for US we made it over 10 years ago.
It allowed us to get our programming on the air It's really drove the beginning of the brand blueprint strategy and you think about my little Pony coming back in again.
Reinvented it now it had a great run for a long time, it's been a terrific investment for us, it's driven over $1 billion in revenue to the company its return a significant amount.
I assume that Theres just changes happening in the cable industry I think as we look around us we see it to more people moving to streaming.
<unk>.
More people moving on onto different thing that being said.
Discovery runs a great network and all of their network is terrific and its been a great investment for Hasbro as we continue evaluating what we're gonna do do with it we will continue looking at what's happening, but it's been a fantastic investment for us over time, it had a really great return and just because of the way the.
Accounting function works, we had that we had a noncash non.
Non op charge in the quarter.
Yes.
Thank you.
Our next question is from the line of Jamie Katz with Morningstar. Please proceed with your question.
Hi, Good morning, I don't think there was any.
Information on how you guys are thinking about capital spending this year in the DAC, but could you give us an update on that and on what you see as the working capital demand changes that we might see this year. Thanks.
Sure absolutely good morning, Jamie.
From a capex standpoint, just straight Capex, our expectation is it would be about $150 million to $180 million in 2022 and that changed from a year ago. If you recall, it's usually.
The majority is spent on tooling, but our increase is really due to digital game development as we sit and look forward and that has driven us a bit higher.
Over time, but that's really where the increase is coming from and our Capex estimates for 2022 from a programming standpoint, I think we mentioned, we expect $725 million to $825 million in content spend.
Up up a tick from 2021, but that's multiyear content spend so as we look out past 'twenty. Two we have a lot of new animated programming coming including new brands. So when you. When you think about that it's a multiyear spend that we're seeing in this year.
So hopefully that's helpful.
And Ken and then I think originally the 2023 outlook was for about 15, 7% for operating margin and that's been lifted a little bit is that primarily due to just the mix of the portfolio.
And where the returns are coming from or is there something else, we should be thinking about no absolutely and that's and that's a great question. Yes, we have been saying that we saw nothing holding us back from getting to over 16% operating profit margins.
And we see that in 2023 and beyond.
When we look at the mix of what we expect to have in our product line, we expect a greater mix of franchise brands.
Our mix of.
I talked a bit about the movies coming out in 2023, like Indiana, Jones, and transform Transformers, and Guardians of New Star Wars, and Dungeons and Dragons. When we think about that and the growth. We expect in our gaming portfolio. We expect to see operating profit margins based on that mix of greater than 16%.
Excellent. Thank you so much nice quarter. Thank.
Thank you.
Next question is coming from the line of Gerrick Johnson with BMO capital markets. Please proceed with your question.
Great. Thank you. Good morning, I was hoping you could talk a little bit more about wizards of the coast in the quarter you gave us some good detail on the year.
But discuss the operating margin declined to 30% or so and if.
If gaming and digital gaming grew in the quarter year over year.
Sure. So as we think about margins operating margins in the quarter. We did have depreciation you know not every quarter is the same right. So we had some digital depreciation in the quarter that and Thats really kind of what youre, saying.
From a quarter on quarter that being said, it's still a very healthy and high operating profit margin.
Within the quarter and Chris do you want to talk about.
Yes, so I think within the quarter. It was just the <unk> of when we depreciate when we capitalize and then also some advertising expenses related to.
And incremental release that we had crimson Val during the quarter as well as continuous support of arena and scaling arena mobile.
The growth of the business has been very strong.
Exceeding our expectations, we continue to have a.
A very positive outlook on it both on the tabletop side on the tabletop side and long term on the digital side for 2022 and beyond.
Okay.
Depreciation was that related to magic legends.
Magic Legends was a licensed game done by perfect World.
So we we.
We werent a part of that royalty.
Royalties from that and a minimum guarantee but didn't invest anything in development or marketing. So depreciation was really just related to argue the only other thing I would point out is people don't think about that think about this very often but our wizards of the coast business and not so much the digital side, but the tabletop side was also impacted.
By the freight and input cost issues that we saw in the consumer products business, So that card business.
From a manufacturing standpoint, if we look at components the highest growth.
Components of our overall inventory this year within paperboard and print right and we think about the printing of the cards and the freight into the cards as well. So that was the other thing that impacted us in the quarter and we do expect to have a bit of an impact in the first quarter as well.
Okay, great can I ask about taxes real quick attach rates seemed a little bit low in the quarter I mean, your op income.
My number but your EPS glued away. So so what did I get wrong and taxes and did you did you have a benefit in the quarter on taxes.
We had we did have some adjustments and discrete items for the quarter I mean, typically we do file our tax returns.
As most companies do in that October timeframe, so to the extent, we have discrete return to provision items <unk> <unk>.
Tend to see those in the corner.
We are going through the integration of <unk>, one we probably had higher impact from that in 2021, then we would expect to go forward.
Alright, Thank you Debbie.
The next question is from the line of Fred Wightman with Wolfe Research. Please proceed with your questions.
Hey, guys. Good morning, I was hoping you could just give a quick overview on how you see the new management structure.
Going forward you guys did not have a CLO after John's retirement, and would love to sort of get the latest thinking on delegation of responsibilities and sort of where do you see the relative strengths across the management team to that.
Yes, sure so I feel very fortunate and the management team that in both inheriting and that we're bringing on board.
In terms of our business unit leaders Darren Throop will continue to lead entertainment any one.
I think we have a fantastic new hire with Cynthia Williams coming onboard at Wizards of the coast and she'll be augmented by Tim fields. Cynthia has a great digital and direct experience from Amazon, where he helped to found that fulfilled by Amazon business and then most recently on the Xbox team working.
A lot of a lot of their cloud services, Tim was the CEO of Kabam, one of the most successful mobile game developers in North America, and I think brings a lot of great production experience as we scale our digital investments and then of course, we have Eric who in addition to being COO will continue to run our consumer.
<unk> products team, Eric has been doing a fantastic job driving that business.
Growing our relationships with partners and thinking about the future of where that goes and as expanded remit you'll be taking on more and more strategic opportunities and operational opportunities across the company, including running all of our global sales and marketing.
And then in addition to that we have Deb, who continues as I think one of the best CFO in the business, helping to think about strategic planning, helping us think about finance and accounting and then of course, our investor relations with.
We have parents Sibley, who will continue as our head of legal affairs. We are Kathryn Bellevue, who is our chief purpose officer and will run a lot of our CSR and ESG initiatives and then we have joining us from Dell.
Jack Ensign, who will be our new chief people officer, helping us drive and scale of this organization and grow the talent that we have within it.
Super helpful.
But just a clarification I think you guys said you were on track for the $130 million of Avon synergies I think previously you were expecting $70 million of incremental savings in 'twenty. Two is that still a good assumption or did the timing of those benefits sort of shift.
No President is a good assumption.
Still on track for the $130 million and we're still on track for the in sourcing we had a little bit of a.
The challenge in supply chain like everything else with our in sourcing.
Pepper and P. J and we continue to work with some of our really terrific license partners actually are consumer product license partners as we move forward.
Deal with some of the supply chain challenges, but we are on track with $130 million and the additional amount in 2022.
Great. Thank you.
Thank you. Our next question Tony from the line of Mike King with Goldman Sachs. Please proceed with your questions.
Hey, great. Thank you very much for the question I was just wondering if you could talk a little bit more about some of the puts and takes in the Wizards business over the next couple of years.
Specifically what are some of the key things, creating tough comps for 2021.
Is it some of the digital deliveries.
I think there was a dungeons <unk> Dragons game and then.
I think it is dark alliance and are you guys on track to deliver.
Our new DND game.
Each year over the next couple of years. Thank you.
Yeah, Hey, Mike.
I'll take this one so on the tabletop side of the business.
We predict.
More historical norm growth after an extraordinary 2021, a big part of a big function of that is last year. We had six of what we call Premier releases, which are large magics that releases versus five historically this year. We'll also have six but you're comping. Those two so it's more about base underlying growth in the business and the user base.
On the digital side of the house last year, we had dark alliance, which shipped at the end of Q2, beginning of Q1, sorry, beginning of Q3 and then so we won't be comping that this year and then we also had magic the gathering online which is R. R.
Our older or our original trading digital trading card game that we've converted to a license model as opposed to an owned and operating bottle and that will be operated by our partners at DAYBREAK Studios. So those to create some headwinds that arena and continued growth in our digital RPG business will.
We will continue to work against longer term, we expect to have a new release at least one every year starting in 2023 through the foreseeable future.
Our 2023 release will likely be in the back half of the year and then we will be sharing more details on what those future releases are likely in the second half of 2022.
Great. Thank you for all the color Chris much appreciated.
Our next question comes from the line of Megan Alexander with Jpmorgan. Please proceed with your question.
Your line is open for questions, perhaps your I'm, sorry, sorry, sorry.
Very much I was hoping you could just talk more about the puts and takes on the operating margin for the full year. You know you spoke to some gross margin pressure in <unk> before the pricing actions go into effect, but do you. Ultimately think you can recoup the freight pressure as we get kind of to the back half of the year, especially as you lap some of the unusual airfreight expenses.
Yes, absolutely.
As we said we expect operating profit margin expansion in 2022, just not reaching our full.
The goal of in excess of 16% by 2023.
We do expect continued challenges with freight costs and input costs for the better part of this year, we do have the pricing coming into play.
It still remains a challenging environment, we think in 2022, so as we think about that first quarter is difficult.
But just because of the price increases come into play in the second quarter and beyond we're very excited about the new launches and all the innovation that we have coming out throughout the year, but in particular around the holiday season.
Great. That's really helpful. And then just as a follow up could you maybe talk a lot about about what you've seen in pls trends as you lap this time.
Neil it's payments in January and maybe how does that inform your expectations.
We lapped the double stimulus payments coming up in March and April sure absolutely you know as we mentioned in.
In our prepared remarks earlier.
Toy and game industry has had incredible growth the past couple of years really above trend.
And when you look at things like stimulus payments going away inflation, alright, I always like to say around the table guys look how much how much milk cost today versus how much it cost a year ago, I think everyone seeing inflation.
That's why we expect the industry to be more muted this year maybe.
Or maybe even down I mean, we've a lot of innovation and a lot of new things coming we have a lot of great Entertainment coming this year, which we believe is going to drive a lot of our demand and that's why we think our business can grow but we do expect to see a bit more muting in the toy and game industry in <unk>.
2022, just because of all these things that arent hitting global inflation, then stimulus payments as you mentioned it and other other.
Other parts that being said, we expect the entertainment industry to grow this year as theater is coming back online and people are going back out and content.
<unk> continues to be at an all time high as well as digital gaming and gaming industry overall.
Expect to continue to grow so that's the benefit of all of the parts of our business working together around our blueprint.
And Thats, what we think gives us a distinct advantage in this type of market.
Great. Thanks very much.
Our next question is from the line of Linda Bolton Weiser with D. A Davidson. Please proceed with your question.
Yes, Hi, I was just thinking about the consumer products business more longer term.
And I.
I definitely don't have the segments going your profitability going back to 2016, but that's when your overall company margin kind of peaked at 16, 4% operating margin how does the consumer product margin kind of very roughly compare back then to what it is today. So I guess, it's around 10%.
<unk> operating margin today was it much higher back then moderately higher I'm just trying to think of what the profitability potential of consumer products is longer term beyond where we are today. Thanks.
Sure well, we expect our consumer products business operating profit margin to continue expanding I think in 2022, we've talked a lot about the cost pressures that hit that business and we've talked about.
In 2023 and beyond.
Expect our operating profit margin as a company as a whole to expand above 16%, we expect a bit faster expansion in consumer products operating profit margin in 2023 and beyond so while I can't go back to 2016, because our business had many facets to it at the time.
And it's our business as a whole we do expect that.
Our business will continue to grow as a company will be in excess of 16% operating profit margin similar to those levels.
In 2023, and our consumer products operating profit margin will expand over time.
Okay. Thanks.
Next question is from the line of Villa Hotel with Sandburg. Please proceed with your question.
Hi, Thanks for taking my question.
I wanted to ask about the Disney Princess license I think I heard Deb said that.
At the peak it was contributing about $250 million in revenue can you comment on how much of the revenue contribution is coming from a star Wars and Marvel portfolio.
So we did say that.
Over the term of the Disney Princess and frozen license, it's averaged about $250 million per year of revenue and the peak was in 2019 with the frozen movie.
So if you just think about that on a revenue standpoint, we continue to remain very excited about our partnership with the Disney Company and continuing with Marvel and Star Wars, and we're all very excited for Indiana Jones, We had a license for Indiana Jones many years ago.
And I've had the opportunity to look at some of the product, we're bringing out and it's just fantastic. So we're very excited about our partnership continuing with the Disney Company, we have not specifically talked about.
Profitability in those lines in total, but I will say, we've said in the past our partner brand portfolio in total in the past has had mid single digit operating profit margins, but our expectation as we move beyond 2023 is that would grow to high single.
Low double digit operating profit margins in 2023 and beyond.
Yeah.
Okay. So just as a follow up.
Would you say that the Disney Princess license compares favorably to the Star Wars or the Marvel One I just kind of wanted to get an understanding.
How this changes things just have a compare for comparative purposes.
Each license is different and depending on what goes into content creation.
Sure.
And within those brands each license has a different margin profile as you look at it.
So what I would say is in 2023 and beyond we expect our partner brand operating profit margins to expand to high single low double digits more in line with some of the other parts of the portfolios of our business.
Okay got it thank you.
Thank you.
We have reached the end of the question and answer session I will now turn the floor back over to Debbie Hancock for closing remarks.
Thank you Rob and thank you everyone for joining the call today. The replay will be available on our website in approximately two hours and management's prepared remarks will be posted on our website. Following this call. Thank you.
This concludes today's conference you may disconnect your lines at this time and thank you for your participation.