Hasbro falls short of Q4 earnings estimates, 2024 guidance

Shares of toymaker Hasbro (HAS) are falling on Tuesday after posting its fourth-quarter earnings, missing out on expectations, with $1.29 billion in revenue versus an expected $1.36 billion. In addition, the company posted its full-year 2024 guidance, predicting its consumer products segment revenue to decline by 7-12% with an operating margin of 4-6%, disappointing investors.

CRFA Analyst Zachary Warring joins Yahoo Finance to discuss Hasbro's performance and how the toy company can move forward in this consumer environment.

Warring explains how Hasbro arrived here:
"I think what the big thing was with the balance sheet was inventories are now back down to below 2019 levels. They started to pay down some debt. They've got somedebt coming due in November which we expect them to pay down, pay off, and not refinance. And we think now they've kind of laid the groundwork to make some slow improvements through this year. They've guided for basically down 5% revenues and some improvement to operating margins."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

[AUDIO LOGO]

BRAD SMITH: Not a ton of upside this morning for Hasbro. Shares of the toy maker falling after reporting fourth quarter earnings that missed expectations. Revenue declined 23% to $1-- oh, excuse me, $1.29 billion. Adjusted earnings per share, that came in at $0.38 versus the $0.64 that the Street was looking for. Full year guidance for 2024 also disappointing investors. For more on the results and the year ahead for Hasbro at least and plus some of the other toy makers, we've got Zachary Warring, who is the CFRA analyst.

Great to have you here, Zach. Let's first start with Hasbro here. I mean, it feels like-- and our team in our newsroom meeting thought I was joking this morning. But hey, Wizards of the Coast, my goodness, that segment at least growing 7%, but there are some other warning spots within this report. I want to get your read.

ZACHARY WARRING: Yeah, I think for-- for us we see this as kind of a throw in the towel quarter. They took a bunch of impairment charges. Obviously, big revenue miss. Bottom line miss. So you know, miss across the boards. Guidance was very conservative, we think. So we think this quarter was kind of throwing the towel. Let's set expectations low going into 2024. And we expect them to beat throughout 2024. We think they've-- they've let, given conservative guidance, and they can beat easily.

RACHELLE AKUFFO: And Zachary, we know that-- i mean, in that earnings report, we saw CEO Chris Cox talking about they have a healthier balance sheet entering into 2024, leaner cost structure, diverse portfolio here. When do we start seeing that pay off, I guess, longer term here? What were investors hoping for that they didn't get from this earnings report?

ZACHARY WARRING: Yeah, I think what the big thing was with the balance sheet was inventories are now back down to below 2019 levels. They've started to pay down some debt. They've got some debt coming due in November, which we expect them to pay down, pay off, and not refinance. And we think now they've kind of laid the groundwork to make some slow improvements through this year. They've guided for basically down 5% revenues and some improvement to operating margins.

So you know, we think in the next few quarters are going to be big for the company. We would worry if next quarter they reported a similar write down, some impairment charges, or goodwill. That would concern us. But we think that this is kind of the throw in the towel. You know, let's reset. And now we can beat going moving forward.

BRAD SMITH: This is a company that's targeting 20% adjusted operating profit margin by 2027. How much of that banks on the digital gaming segment and the licensing that they're able to take on there and the build out for end users to flock in and perhaps make purchases on the content and then in-game or inexperienced purchases as well?

ZACHARY WARRING: Yeah, that would be-- that's huge. Digital is the only way that they can get to 20% operating margin. Obviously, you're not going to get that from consumer products, which is currently their largest percentage of revenues. So you know, digital is huge, and that's where they're investing a lot. Obviously, they've had success there. They are however expecting revenues to be slightly down this year because of some second-half comps on licensing agreements. But we think that's where they're going to get it.

Entertainment obviously is now going to be much smaller as they've sold off their non-core entertainment business. So it's going to have to come from digital consumer products. Obviously, that doesn't carry anywhere near a 20% operating margin. So you're exactly right.