Hasbro Earnings Hit by U.S.-China Trade War

Brian Goldner - H - 2019

The toy and entertainment company is close to completing a deal to acquire Entertainment One for $4 billion.

Hasbro on Tuesday missed Wall Street estimates for its third-quarter earnings, due in part to to the impact on domestic retail sales of enacted and delayed U.S. tariffs of China-made toys.

The toy and entertainment giant, which is set to acquire indie studio Entertainment One for $4 billion, posted earnings of $213 million, down from $263 million in the year-ago period, missing the profit forecast of $281 million, according to a FactSet survey.

Excluding one-time items, Hasbro posted adjusted earnings for the quarter to Sept. 29 of $1.84 per share, which fell short of an analyst forecast of $2.21 per share. Quarterly revenue rose slightly to $1.58 billion but missed the analyst forecast of $1.71 billion.

Hasbro said enacted and threatened tariffs on toys made in China and exported to the U.S. market "negatively impacted" its revenues during the latest quarter. The toy maker also posted a one-time after-tax loss of $20.9 million due to currency hedging costs stemming from its all-cash acquisition of eOne.

Hasbro shares tumbled more than 15 percent to $101.81 in pre-market trading on Tuesday as investors weighed how the threatened U.S. tariffs would boost shipping and warehousing costs at the toy and board game maker.

The threat of additional tariffs on China-made toys, recently delayed to Dec. 15, still hangs over the toy and entertainment giant as its toy supply chain and shipment timings from China to the U.S. market continue to be disrupted. "Hasbro remains on track to deliver profitable revenue growth in 2019, behind innovation in gaming, toys and around Hasbro's brand blueprint. However, as we've communicated, the threat and enactment of tariffs reduced revenues in the third quarter and increased expenses to deliver product to retail," CEO Brian Goldner said in a statement.

Hasbro said it expects to close the eOne deal during the current fourth quarter as it awaits Canadian and U.K. regulatory approvals for the transaction. The acquisition, once completed, will hand Hasbro the Canadian studio's Peppa Pig and PJ Masks kids series and other top properties, such as Nickelodeon's Ricky Zoom.

Hasbro, the toy maker behind behind My Little Pony and Play-Doh, expects that nabbing eOne will allow the company to drive new licensing revenues from newly acquired family brands like Peppa Pig and to develop non-core IP not part of the separate long-term deal with Paramount to jointly finance projects that the Hollywood studio distributes worldwide.

"We're very excited about bringing on board the brands, the capabilities and the personnel. We are actively meeting one another and beginning to share what each business is all about. It's very exciting to look at the two companies together," Goldner told analysts about closing the eOne deal during a call otherwise dominated by the impact of the China-U.S. trade war on toy retail sales.

As My Little Pony: Friendship Is Magic on Discovery Family Channel provides a finale for the franchise after nine years and 221 episodes, Hasbro and Paramount Pictures plan to produce a My Little Pony animated feature for 2021.

"While revenue has declined as this storyline comes to an end, we see the potential to once again re-imagine the brand and are investing in content and innovation in partnership with Paramount," Goldner told analysts about the My Little Pony franchise.

Oct. 22 6 a.m. Updated with comments by Hasbro CEO Brian Goldner made during an analyst call.