Hasbro didn't leave many investors with smiles on their face amid a closely watched, three-hour plus live-streamed investor day hosted by new CEO Chris Cocks on Tuesday.
"It was more of the status quo," one disappointed institutional investor told Yahoo Finance. The investor was hoping for more clarity on a restructuring of the capital intensive eOne entertainment business it acquired for $4 billion in 2019, among other wish list items.
Instead, Hasbro outlined what some investors deemed too aggressive growth targets for 2027. Moreover, the company promised to increase operating profits by a whopping 50% over the next three years — mostly through cost cuts and new product introductions. All of that hype by management comes despite rising economic pressures causing a contraction in U.S. GDP growth in the first half of 2022.
The mounting financial pressure on consumers and volatile currency markets caused Hasbro to slash its full year sales guidance at the event and bank on a big holiday quarter to meet its lowered financial goals.
The lack of enthusiasm after investor day showed in Hasbro's stock price performance by the closing bell. The Dow Jones Industrial Average finished up 825 points in Tuesday's session, yet Hasbro’s stock barely finished up 2%. Rival Mattel's stock advanced 3% on the day.
Hasbro — which somehow thwarted a well-thought out activist attack by investor Alta Fox several months ago — continues to see its stock hover around a 52-week low after several challenging quarters.
The stock is off by 30% so far in 2022, lagging even the S&P 500's 20% drop. Mattel's stock, meanwhile, is down by about 9% in 2022 as the toymaker has engineered a successful turnaround under CEO Ynon Kreiz (more on that in the video above).
"While the pullback in the stock is tempting especially considering its ~4% dividend yield," JP Morgan analyst Megan Alexander wrote in an investor day recap note, "we still think it is early and believe Hasbro is a show-me story in the near-term with 4Q an even higher-bar considering three quarters of misses vs. the Street in its high-margin Wizards of the Coast segment while trends in its consumer products business appear to be deteriorating into a weaker consumer backdrop."
Here's a Yahoo Finance rundown of Hasbro's investor day:
Full year revenue guidance slashed: seen flat to slightly down in constant currency (prior: up low-single digit percentage).
3Q reported sales seen down 15%.
3Q constant currency sales seen down 12%.
3Q operating margins seen under pressure.
Operating profits seen up 50% over next three years despite mounting economic pressures.
2027 sales target $8.5 billion/analyst sales estimate 2022: $6.47 billion (viewed as optimistic).
2027 operating margin target 20%/analyst estimate for 2022: 16.2% (viewed as optimistic.
Outlook cut is holding more sway with investors near-term.
2027 targets look too optimistic.
Need detailed action on eOne entertainment division restructuring.
What Wall Street Is Saying
JP Morgan Analyst Megan Alexander
Price target $85.
"Contrary to our expectations, Hasbro negatively pre-announced 3Q top line results and lowered the full-year guide given incremental FX pressure, a shift in timing of releases/deliveries for Wizards of the Coast and Entertainment, and a softer macro backdrop impacting its consumer products segment. More specifically, Hasbro expects 3Q revenue to decline 15% (down 12% in constant currency) vs. Street down 5% heading into today with a more significant impact on operating profit given the mix of revenue compared to last year. Full-year revenue growth is now guided flat to down slightly in constant currency (vs. up low-single digit prior) while Hasbro maintained its operating margin guide of 16.0%. While we were anticipating a 3Q miss on FX (which we lowered for yesterday), the 3Q result came in well-below our (and buyside) expectations, based on our conversations."