The operator welcomes participants to Hasbro's Third Quarter 2023 Earnings Conference Call and reminds them that the call is being recorded. Senior Vice President, Debbie Hancock, introduces CEO Chris Cocks and CFO Gina Goetter, who will provide commentary on the company's performance. The earnings release and presentation slides can be found on the Investor website and will discuss non-GAAP adjustments. A reconciliation of GAAP to non-GAAP measures is included. Management may make forward-looking statements during the call, and factors that could affect actual results are listed in public disclosures. The guidance assumes the retention of the non-core entertainment Film and TV business.

Hasbro has made progress in implementing their strategic plan, Blueprint 2.0, which aims to focus on key categories, drive operational excellence, and build new growth through play. The company has divested some businesses and will now prioritize franchise-led and asset-light entertainment efforts to drive toy and game sales. However, more work needs to be done, particularly in the Consumer Products segment, and the company is committed to returning it to growth.

Hasbro has a diverse range of projects in development, including blockbuster movies, an animated series, and digital content. They are focusing on operational excellence and have exceeded their cost savings targets. Their supply chain team is driving significant savings and they are reinventing themselves to improve margins and competitiveness. They are also improving inventory management and expect to end the year with significantly lower inventory levels, which will improve cash flow and lower allowances.

The company's Consumer Products segment has faced challenges, but they plan to accelerate cost-saving initiatives to achieve their 2025 goal earlier than expected. The growth initiatives, including partnerships with popular IPs like Lord of the Rings, Fallout, and Marvel, are on track and expected to generate significant revenue. The company's digital gaming division, including MAGIC: THE GATHERING and D&D, is also performing well, with successful releases and partnerships.

In the pre-2018 games, Hasbro has seen growth in their direct-to-consumer business and plans to continue expanding their direct initiatives. They have also seen growth in key categories, but have faced challenges in their Consumer Products business. Despite this, they are still expecting growth in the toy category and are performing in line with the market.

The company's internal POS system shows a decrease in total point of sale in Q3, but they have maintained their share in core categories and are working to improve operational efficiency. They anticipate a late-breaking and deal-heavy holiday season and are taking steps to position their portfolio for continued share growth. The company is investing in Q4 to drive momentum, including maintaining advertising and promotions budgets and working with retail partners. They are also accelerating cost savings initiatives and investing in product innovation. Their long-term capital priorities guide their decision-making and they are investing to ensure a healthy exit for their toy business in 2024.

The article discusses Hasbro's Q3 results, highlighting progress in key initiatives and the strength and diversity of their brand portfolio. The company is focused on transforming and improving profitability, with a particular focus on their gaming business. Despite challenges in the toy and entertainment markets, Hasbro is growing its share and seeing the benefits of cost savings initiatives. Revenue was down 10% due to macro trends and planned business exits, but adjusted operating profit increased by 27% thanks to strong digital game revenues and lower expenses.

In the third quarter, the company's adjusted earnings per share increased by 15%, driven by higher operating profit. The adjusted results exclude one-time charges and losses. Franchise Brands saw significant revenue growth, with gaming brands performing well. Partner Brands declined, but the company expects improvement in the future. Operating margin also improved, driven by cost savings and lower expenses. The company will continue to invest in advertising and marketing. Transformation activities are delivering savings for the company.

The company has been successful in reducing costs and increasing savings through various programs, allowing them to navigate a softer toy market. They have accumulated $154 million in gross cost savings this year and have reduced inventory levels by 27%. The Wizard segment saw a 40% increase in revenue, with a significant portion coming from licensed digital gaming revenue. Baldur's Gate revenue is recognized through unit sales, while MONOPOLY GO! has a straight-line revenue recognition. The company remains focused on achieving a clean start to 2024 and staying in sync with category momentum.

In the third quarter, cable top revenue increased by 14% due to timing releases and growth in high-margin digital gaming. The Consumer Products segment saw a decline in revenue, driven by planned license exits and overall category trends. The Entertainment segment also experienced a decline in revenue due to the writers and actors strikes, but partially offset by growth in Family Brands. Adjusted operating profit increased in the Entertainment segment due to lower expenses and the sale of E1 film and TV assets. Full year earnings for the segment are expected to be breakeven or slightly negative.

The company has received regulatory approval for the sale of E1 film and TV and is on track to close the deal by the end of the year. They have seen improvements in operating cash and cash equivalents, and have repaid debt and invested in future digital gaming releases. The adjusted underlying tax rate has increased due to film and TV losses and a shift in income mix. The company has adjusted their 2023 guidance to account for declines in the toy category, with total revenue expected to be down 13-15%. The consumer products business is expected to see a mid-to-high teens decline, with a modest improvement in Q4 and cautious inventory patterns from retailers.

In summary, Wizards of the Coast is expected to have high single-digit revenue growth due to strong performance in digital games and MAGIC. BG3 and MONOPOLY GO! are expected to contribute over $90 million in revenue for the year. Entertainment revenue is expected to decline by 25-30%, and total company revenue is expected to decline by 8-11% excluding assets held for sale. Adjusted operating margin is expected to be between 13-13.5%, reflecting the impact of CP revenue call down and cost savings efforts. 2023 adjusted EBITDA is expected to be $900 million to $950 million, with $500 million to $600 million in operating cash flow. The company's priorities are to invest in the business, pay down debt, and return excess cash to shareholders through dividends. The long-term leverage target is two to 2.5 times.

The speaker discusses the progress of the company's transformation and their focus on strengthening their gaming and toy businesses. They mention that they believe the toy market will stabilize and return to growth. The company exceeded expectations in the third quarter for Wizards and expects a long tail for Baldur's Gate 3 and MONOPOLY GO!. They also mention that revenue for BG3 is being recognized as units are delivered.

The speaker, Chris, discusses the performance of a game called MONOPOLY GO! and its impact on the company's revenue. He explains that the game is currently the top-grossing mobile game in the world and that the company expects it to continue to do well. He also mentions that the company has a deal with Scopely, the game's developer, which includes minimum guarantees and incentives for marketing. As the game reaches maturity, the company's participation in revenue will increase. The speaker also briefly mentions the company's consumer products category and its plans for improvement.

The company's franchise brands are tied to their key categories, including Transformers, Power Rangers, NERF, PLAY-DOH, PEPPA PIG, and a portfolio of games. Transformers is up 30% year-over-year and had a 90% increase during the movie window. PLAY-DOH is driving share in the creativity category, and the games portfolio is strong. The company wants to see more improvement in NERF and plans to expand the brand beyond just darts. Partner brands, such as Marvel and Star Wars, had a record year last year but are experiencing a retrenchment this year.

Hasbro has plans to expand categories with Disney, such as their partnership on Marvel and MAGIC. They are also expecting a boost in sales from their new version of BEYBLADE. The company has hired a new leader for their toy division, who is expected to make a big impact in the next 18-24 months. They are also expecting a return to historical growth rates for the toy market and believe their diversification will benefit them regardless of market conditions. Currently, they are focused on cleaning up and resetting the foundation for their toy division.

The company is focused on improving profitability in 2024 and preparing for new and sharper innovations in 2025. They plan to remain aggressive and compete for market share. In the fourth quarter, they have a Lord of the Rings set and a new premier set for MAGIC. They expect more universes beyond releases in 2024, and they have a tough comparison in Q2 due to the success of Lord of the Rings. They also have another set coming out in Q2 called Modern Horizon 3.

In the 18th paragraph of the article, the speaker discusses the success of key sets in the history of MAGIC, including Lord of the Rings and Modern Horizons 2, which have both surpassed $200 million in sales. They express confidence in the upcoming Modern Horizons 3 set and mention six to seven premier sets per year. The speaker also mentions the company's valuable partnership with Walt Disney and their commitment to expanding it. In response to a question about the Marvel license, the speaker emphasizes the company's dedication to the partnership and their plans for growth in the mid and long-term. In a follow-up question, the speaker is asked about the status of MONOPOLY GO! and Baldur's Gate 3 and their impact on fourth quarter earnings.

The speaker is discussing the expected revenue for the full year from two licenses, MONOPOLY GO! and Baldur's Gate 3, and how it will impact Wizards revenue in the fourth quarter. They clarify that overall, Wizards will see growth in the fourth quarter, but there may be a slight decline in the D&D business. The speaker also mentions destocking in the Consumer Products business as a potential headwind.

The speaker discusses the impact of destocking on the company's revenue in 2024 and mentions a one-time cost of $50 million that will be a headwind for the company in 2021 but should become a tailwind in 2024. They also mention that this cost includes both a revenue and cost headwind and that the volume of toy and game sales may see a low double-digit decline in 2021.

The speaker is discussing the changes in the Consumer Products segment's inventory destocking and how it will affect sales in the next year. They mention a one-time cost of $50 million and a decline of 3-4 points in revenue due to the acceleration of inventory movement. They also mention cost savings of $200 million this year and a potential increase to $300 million next year, but clarify that none of it will impact the bottom line this year due to it all being used for inventory.

The company is focusing on net savings in 2024 and expects to see margin acceleration next year. They are investing in growth initiatives and half of the cost savings will go towards long-term investments. The company is actively working on cost efficiencies and may see potential upside to the $300 million goal. In the digital segment, the company is seeing strong momentum in games like Baldur's Gate and MONOPOLY GO!, and is also expecting growth from other games in the pipeline.

The company is making good progress in cost savings through their supply chain, with a focus on logistics this year and procurement and manufacturing next year. They are also working on reducing complexity, improving profitability, and reducing corporate overhead. In terms of digital, they expect a long tail on Baldur's Gate 3 and MONOPOLY GO!, with new deals in development and high demand for their IP in the digital space.

The speaker discusses the demand for new digital content and the success of MONOPOLY Go and D&D with Baldur's Gate 3. They predict that these properties will continue to be profitable in the future. The speaker also mentions their cautious outlook for the holiday season and acknowledges the difficulty in predicting its success.

The company has long-term goals for the market and is confident in its resilience. However, due to the unpredictability of the market, they are taking a cautious approach in the short-term. They plan to take advantage of opportunities and gain market share, but are uncertain about the market's direction. They expect a rebound in operating profit in 2024 due to short-term investments and cost-cutting measures.

The speaker mentions the success of licensing games from toys and movies, specifically mentioning Baldur's Gate 3. They note that this was their first deal at Wizards of the Coast and they are proud of the outcome.

The speaker discusses the success of video games, mobile games, and movies in the past year, particularly those based on play-based brands. They mention the growing demographic of gamers over 45 years old and express optimism for the industry and Hasbro's brand portfolio. The speaker also addresses the challenge of balancing traditional toy cycles with the fast-paced world of gaming.

The company's diversification is seen as a strength, with Wizards of the Coast being a highly profitable business. This allows for self-funding of long-term investments and helps to cushion the restructuring of the toy business. Despite lower Q4 numbers, the company remains optimistic and is investing for future success. The call also congratulated the company on their upcoming game, Baldur's Gate 3. A replay of the call will be available on the company's website.

This summary was generated with AI and may contain some inaccuracies.