Hasbro CEO on earnings, new products, and whether toy prices will go up amid rising oil prices

Hasbro CEO Brian Goldner joins Yahoo Finance Live to discuss the company’s latest quarterly results — which topped analyst estimates on the top and bottom lines — as well as its latest products and whether toy prices will go up as oil prices rise.

Video Transcript

BRIAN SOZZI: All right, the toy industry is coming off a pretty good 2020 as people stayed home during the pandemic and played a whole lot of new board games. That industry growth is expected to continue this year, though perhaps at a little bit of a slower pace. Who better to chat all things toys than Hasbro's chairman and CEO, Brian Goldner. Brian, always good to speak with you here.

So your fourth quarter, out this week, US and Canada, sales up 16%. Good. People are still home, buying a lot of games. Has that momentum continued?

BRIAN GOLDNER: It really has. We saw for the full year 2020 that our total games category was up 27%, and for the full year, was up 15%. As we enter 2021, our POS thus far has been up nearly 30%. Games are really running ahead. The Nerf business is performing quite well, our Play-Doh business.

People are still very much into making connections, playing together, and in fact, what we've seen through research is a lot of new families have come into the category that had not really been involved in game playing up until this past year. So in many ways, the headwinds that we've seen in supply chain and store closures will become a tailwind as the consumer has really adopted a lot of these behaviors.

BRIAN SOZZI: Brian, last year was the year of board games. What will this year be?

BRIAN GOLDNER: So severalfold, we think our games and toy business will grow mid single digits ahead of the industry, as you know, E1 was up in the fourth quarter, we're back into production on television and film, and we believe E1 can go back and achieve the kinds of revenues we saw in 2019, which would mean nearly 30% growth in that business for 2021.

And then our Wizards of the Coast business, as you know, with Magic The Gathering and Dungeons and Dragons, both having best ever years this past year, we expect double digit growth as well there as they continue to move toward doubling the size of that business overall by 2023.

So if you blend that all together, we expect double digit revenue growth at Hasbro, and a real opportunity to maintain our margins with that growth this year, 2021, and there are a few costs that come into the business as a result of a lot of the digital games we're doing for Wizards, but the fact is, very strong growth, midteens operating profit margin, very strong cash generation. You saw at the end of the year, we had $1.45 billion in cash, we had prepaid some of the debt, and we expect to get back to our debt to EBITDA of 2 to 2 and 1/2 times.

JULIE HYMAN: Brian, it's Julie here. I have a couple of Magic The Gathering fans in my household, I must say. However, they're also, and I would argue even more, Roblox fans, especially these days, as the kids are home a lot. So how are you thinking about that digital competition? You mentioned you do have some digital offerings that are linked to your existing games, but is that your biggest competition right now? That online migration?

BRIAN GOLDNER: Well, actually, it's very complementary. Many people had said, when we launched Magic Arena, which is an online version of Magic The Gathering, with the card game being played face to face, that would be cannibalistic. But instead, it's really driven the card game, it's really built in marketing. We're getting more of the 24/7 day parts where our consumers are playing nearly nine hours a week online. And then we're offering great digital games across an array of brands that are more consistent with a Roblox demographic.

Remember, Magic The Gathering and D&D are played with teenagers and older, but we've got a great Yahtzee with Buddies game from Scopely, that's a third party license. We have Scrabble Go. We have a number of My Little Pony games and Transformers games. Increasingly, GI Joe.

So yeah, we want to participate in digital games as well as face to face gaming. And we have a roadmap to get there.

MYLES UDLAND: Brian, I'm curious about the demographic mix you may have seen in 2020. I think about myself and my peer group, all we could do is stay home. And my wife and I bought a couple of board games, and played them, and went back to watching Netflix. But does that change the way you are thinking about potential addressable markets, where people maybe rediscovered Magic after having put it down after college, as an example. And are you thinking about trying to pull some of those levers?

BRIAN GOLDNER: That's exactly right. Hasbro has enjoyed, for years, broader demographics and a broader portfolio than a lot of our competitors. We have toys and games that play at Play-Doh and Chutes and Ladders for the youngest children, and then you have Magic the Gathering and Dungeons and Dragons and Axis and Allies and Risk that play for that older audience.

So it's been our responsibility to contemporize those games, bring new versions to these audiences, and people have really responded. You see a games category that's grown by nearly 30% in the fourth quarter and 15% last year, the momentum has continued, the new products that we're bringing out around D&D in digital, and in Magic. Magic Arena, which has only been available on PC thus far, is moving to Android right now in open access, and will move to iOS this year.

So we're going to get to the heart of that mobile gaming player through Magic The Gathering, and that's millions of new players that would never play on PC, would play more casually.

We're also launching a casual Magic The Gathering game called Spell Slingers, we're launching a Dungeons and Dragons game called The Dark Alliance. So you're going to see an array of games that really reflect the demographics of Hasbro, running from the youngest audiences all the way through adults.

BRIAN SOZZI: Brian, the E1 pipeline is pretty impressive. You called out 150 projects, and you also have 30 Hasbro IP on terms of products. What movies, what content will be coming from you this year, and do you think that will drive more revenues this year from E1 than you originally thought when you bought the business?

BRIAN GOLDNER: Yeah, we've actually had more success in developing Hasbro IP during a period where people were working virtually together. So while TV and film wasn't in production, we had the teams together, there was more integration. As you know, we talked about our cost synergies, we've achieved beyond the cost synergies we thought we'd get in year one, and we've now stood up a number of creative projects.

We have an investor meeting coming up on February 25, and the team is going to outline any number of major Hasbro IP that will be streamed television, in motion picture, but I'll give you a couple.

Dungeons and Dragons movie is progressing, you're going to hear more about D&D in television, our Transformers business, we're clearly working toward another film, but we also have other Transformers, new content coming. We have great creative stewards working on a brand new take of Power Rangers and a young adult's face, as well as a feature film.

So you're going to see that we've made a lot of progress to put Hasbro IP in the market, and of course, now we have a profitable entertainment engine, versus our marketing expense that we used to take to drive consumer products in gaming, and then the flywheel is, of course, it will attract our toy and game business to be developed, and then the consumer products licensing, as well as digital games and the games and brands at Wizards of the Coast.

BRIAN SOZZI: Brian, I was going to ask you a different question, but this one just came in from our very big toy fan, and our producer, Nick Monty. I mean, this guy loves toys. He wants to know about the rise in oil prices. Oil prices have really spiked over the past month or so. Have you started to see that impact how you produce your toys, and are you looking at price increases?

BRIAN GOLDNER: Yeah. No, we're not really looking at substantial price increases on our products. Luckily, the way that oil prices work, that the resin prices move in arrears, and we signed contracts with a lot of our third party manufacturers for more than 12 to 18 months. So we might see oil prices creep up, and then over a period of time behind that might go resin prices, but we haven't seen major spikes yet.

We are seeing a bit of pressure in domestic shipments. We talked a little about that on our call with investors, and that's something we think we can mitigate over time. But have seen that as a result of the surge of demand domestically, and the increases that we're seeing, nearly 50% increase, in eComm and omnichannel, and of course, that requires a lot of domestic shipments, and just in time inventories.

BRIAN SOZZI: All right, we'll leave it there. Hasbro chairman and CEO Brian Goldner. Always good to speak with you. Stay safe and hope to talk to you around your investor day soon.

BRIAN GOLDNER: All right, great. Take care, Brian.