In the first paragraph of Hasbro's Third Quarter 2024 Earnings Conference Call, the operator welcomes participants and explains that the call will initially be in listen-only mode, while also noting the call is being recorded. Kern Kapoor, Senior Vice President of Investor Relations, is introduced, and he mentions that Chris Cocks, the CEO, and Gina Goetter, the CFO, will provide commentary on the company's performance before taking questions. Kapoor notes that the earnings release and presentation slides are available on the investor website, which include non-GAAP financial information and reconciliations. He also reminds participants that forward-looking statements may be made, which could be impacted by various factors disclosed in their reports and press releases, and that there's no obligation to update these statements.

In the paragraph, Chris Cocks discusses Hasbro's positive financial performance in Q3, highlighting the benefits of strategic changes focusing on games and licensing, which have led to increased operating profit margins. While Consumer Products revenue was lower than expected, the decline has slowed, and strength in the Wizards segment provides optimism for Q4. Despite adjusting full-year revenue guidance, Hasbro anticipates improved profitability and cash flow in 2024 and beyond due to strategic shifts towards games, digital platforms, and IP licensing. The company aims to align with consumer trends and modernize its business model. Gina will provide more details on the financials and outlook.

Magic: The Gathering is experiencing significant growth this year, driven by successful new set releases like Bloomburrow and Duskmourn, and strong performances in backlist products, particularly Commander decks and Secret Lair. The game is also seeing increased engagement on Arena. Magic's collaboration with Marvel is set to launch themed Secret Lair drops in December. Dungeons & Dragons has achieved record-breaking sales with its updated Player’s Handbook and has seen direct-to-consumer revenue grow significantly due to the acquisition of D&D Beyond. The upcoming Dungeon Master’s Guide has received positive early reviews. Additionally, Hasbro's Monopoly Go! is generating substantial licensing revenue, contributing to the company's success.

The paragraph highlights Hasbro’s strategies and performance across various segments. It discusses the innovative efforts by Scopely, including partnerships with Marvel and the launch of a loyalty program to enhance the Monopoly Go! mobile game. The company’s out-licensing strategy for toy brands like Furreal Friends and Littlest Pet Shop is exceeding expectations with significant sales growth. My Little Pony is experiencing a resurgence through international partnerships, and new Lego collaborations include the Lego Peppa Duplo and Lego Icons Bumblebee related to the Transformers One movie. Although toy revenue has softened due to strategic decisions for higher profitability and fewer closeouts, Hasbro remains optimistic about action figures, particularly Star Wars, as well as the Beyblade X launch, supported by media promotions and a new anime series.

The paragraph discusses several product lines and their recent performance, highlighting positive trends and anticipated growth. Beyblade is showing a positive turnaround, and Marvel toys are benefiting from recent franchises like Deadpool and Wolverine. Play-Doh saw a significant sales increase during the back-to-school season, and Peppa Pig products are performing well in major retail stores. Additionally, Hasbro is focusing on fast-to-market innovations, with successful new board games and increased in-store promotions and advertising. Overall, the company is optimistic about future growth in 2025 and 2026, with a strong lineup of products and collaborations in place.

The paragraph outlines Hasbro's positive performance and strategic improvements. The company has achieved higher margins and healthier inventory levels, with significant progress in digital initiatives, licensing, and product innovation. Despite a shortfall in toy revenue, there was a moderation in the decline and the highest operating margin in three years. Success in the Wizards segment, particularly with Magic, alongside strong consumer products licensing, has bolstered Hasbro's position. The supply chain has enhanced productivity and maintained low inventory levels, down 40% year-over-year, indicating resilience in Hasbro's business model. The company anticipates increased profit, cash flow, and operational rigor in 2024.

The company has strategically decided to keep supply tight, resulting in a decrease in closeout volume and impacting CP revenue, but benefiting gross margins. This decision aligns with the aim to restore toy profitability and enhance premium offerings. Maintaining disciplined inventory requires accurate demand forecasting and supply chain flexibility. They are upgrading processes and combining teams under Tim Kilpin to boost operational efficiency, particularly in their CP Segment. The Design team's role is expanded to integrate with supply chain and development in Asia for faster market entry and resource allocation. Despite efforts, Q3 financial results show a 15% revenue decrease to $1.3 billion from the previous year, with impacts from the eOne divestiture and reduced sales volumes across segments.

In the paragraph, it's noted that Entertainment revenue decreased by 17% due to deal timing, though adjusted operating profit and margins improved due to a favorable business mix and cost efficiency. Adjusted net earnings for Q3 reached $244 million, with earnings per share increasing slightly. Despite a return of $98 million to shareholders and concluding the period with $1.2 billion in cash, Hasbro's year-to-date revenue fell by 18%. Excluding the eOne divestiture impact, the decline was 8%. However, the adjusted operating profit improved by 10 points year-over-year. Year-to-date adjusted net earnings were $498 million, and operating cash flow increased significantly due to better profitability and working capital management. Within its major segments, Wizards' revenue declined by 5%, with growth in Magic: The Gathering offset by a decline in Baldur's Gate 3 revenue. Magic saw a 3% growth thanks to new releases and strong backlist performance.

The paragraph reports that Wizards experienced a decline in operating margin to 44.9%, mainly due to decreased licensed digital gaming revenue. Consumer Products saw a 10% revenue decrease due to lower volumes from exited brands and reduced closeouts, though some brands like Transformers, Beyblade, and Furby grew. The decline was also affected by weak performance in Nerf and Star Wars action figures. Despite the revenue drop, Consumer Products’ adjusted operating margin improved to 15.1% due to a profitable licensing mix, supply chain improvements, and cost management. Year-to-date, Consumer Products managed to keep operating profit flat despite a significant revenue decline. For 2024, Wizards revenue is expected to be flat or down 1%, an improved forecast thanks to strong performance from Magic. Licensed digital gaming revenue projections remain stable, with specific contributions from Monopoly Go! and Baldur's Gate 3.

The paragraph outlines financial expectations and guidance for the upcoming quarter and year for Hasbro. The company anticipates a significant year-over-year revenue decline in Q4, particularly in the Magic and Consumer Products segments, due to timing and reduced forecasts. Despite this, they expect a stabilization in the Consumer Products business with improved year-over-year margins, following last year's inventory adjustments. For Entertainment, they predict a $15 million revenue drop adjusted for their eOne divestiture but expect a strong operating margin. Hasbro aims to achieve $750 million in gross cost savings by 2025, with a more immediate target of $200-$250 million in net savings for 2024. They have already achieved significant cost savings this year. The company's overall EBITDA guidance remains steady, and they anticipate improved cash levels by the end of 2024. Their capital allocation priorities include investing in the business, returning cash to shareholders, and reducing debt. The paragraph ends by opening the floor for questions.

The paragraph involves a Q&A session where Drew Crum from Stifel asks about the financial outlook and marketing strategies for Monopoly Go! He highlights concerns about declining downloads despite expectations of high marketing spend. Crum seeks clarification on whether Hasbro can sustain $10 million in monthly royalty revenue and how the launch of Monopoly Go!’s web store impacts royalties. Chris Cocks responds, indicating confidence in maintaining the revenue forecast by considering factors like gross revenue, store revenue share, and user acquisition expenses. He notes healthy user acquisition metrics and strong consumer engagement indicative of the Monopoly brand's strength. Gina Goetter also offers additional insights.

The paragraph discusses the stabilization of the decay rate in comparison to previous quarters, indicating it was less volatile. It references a marketing spend range of 25% to 35%, noting that spending was at the higher end as predicted. Revenue expectations for Q3 were $30 million, averaging about $10 million per month, and similar projections are anticipated for Q4. Additionally, success with initiatives like the Tycoon Club could potentially increase revenue. Megan Alexander from Morgan Stanley asks about changes in the consumer products guidance, noting a decline in expected Q4 performance, and inquires about POS expectations given previous inventory actions. Gina Goetter acknowledges the question.

The paragraph discusses the breakdown of a $100 million revenue forecast reduction. Half of the reduction is due to closing out unprofitable deals, roughly 30%-40% is linked to underperformance of entertainment-backed brands like Star Wars, and the remainder is attributed to challenges in adapting to a leaner inventory and more rigorous supply and demand planning processes. The company notes that there hasn't been a significant change in point-of-sale outlook, and emphasizes that the expected decrease in discounted toy volume is a major factor in the overall decline. However, non-discounted toy volume is expected to be stable or increase in Q4. Additionally, closeout revenue, while more profitable, negatively impacts the top-line revenue.

In the paragraph, Gina Goetter addresses a question about the third quarter's strong performance despite a decline in top-line growth and whether any non-recurring events influenced these results. She clarifies that there was no one-time event affecting the Q3 margins, attributing the positive performance to improvements in the supply chain reflected in the P&L. For the fourth quarter, she notes that increased royalty expenses due to product mix changes, such as Beyblade and Transformers, and the lapping of managed expense reductions from the previous year's Q4 could impact margins. These factors should be considered when assessing the Q4 margin guidance. Following this, Christopher Horvers from J.P. Morgan & Chase asks about the Consumer Products (CP) outlook, inquiring about the influence of exited brands on third and fourth-quarter outcomes.

In the discussion, Gina Goetter and Chris Cocks address revenue from exited brands and how they are now outsourced to third parties, which is showing positive growth. They explain that the financial impact from these exited brands will be similar in the fourth quarter as it was in the third quarter. By 2025, the bulk of the financial impact from the exited brands should be behind them, and healthy royalty rates are expected. Concerning Monopoly Go!, both acknowledge that the game is expected to maintain or improve its financial performance in 2025 compared to 2024. They also clarify that they have an additional quarter in 2025 to surpass the minimum guarantee.

In the paragraph, Eric Handler asks about the future of Baldur’s Gate 3 and Larian's relationship with the game. Chris Cocks responds by comparing Larian's management of Baldur’s Gate 3 to its successful handling of the Divinity franchise, praising Larian's community-friendly approach and ability to keep content fresh. He mentions that while Baldur’s Gate 3 won't generate as much revenue as it did this year, it will still be profitable for years. Eric also asks Gina Goetter about the expected decline in Magic's sales. Gina confirms a slight decline due to the absence of a comparable Fourth Quarter holiday set from Lord of the Rings, but expects things to balance out by 2025. Chris reiterates the strength of Magic's longevity.

In the paragraph, Alex Perry asks about the anticipated revenue and operational margin decline for the Wizard of the Coast in the fourth quarter, suggesting it might be due to a decrease in Magic set volumes compared to the previous year's boost from the Lord of the Rings holiday set. Gina Goetter confirms that the revenue and margin drop is primarily due to the timing of Magic set releases, with the digital portfolio remaining stable year-over-year. Chris Cocks adds that the previous year's revenue was boosted by December sales of Lord of the Rings products and notes a delay in the upcoming January set, which will impact sales timing. Arpine Kocharyan then discusses the company's operating profit margin for the year, noting it would require a significant drop in Q4 to meet expectations.

The paragraph discusses a company's financial performance and expectations for the year. Gina Goetter explains that despite a strong third quarter, overall company margins decline in the fourth quarter due to a business mix that leans more heavily towards toys versus wizards, causing a margin drag. Additionally, there is a deleverage impact affecting the Wizards P&L. Arpine Kocharyan asks for an update on year-to-date point-of-sale (POS) data, particularly excluding licensing exits, and the industry's expected POS change for the year. Chris Cocks responds, noting that excluding building blocks, the toy industry is expected to decline by about 2% to 5%.

The paragraph discusses the company's expectations for the holiday season, anticipating a modest decline in the toy industry, particularly excluding building blocks which might remain flat or slightly decrease. The company is optimistic about improvements in sales due to increased in-store promotions and better product positioning, especially at major retailers like Target and Walmart. The conversation shifts to a question from Sean Rooney about retailer sentiment and brand excitement for Q4. Chris Cocks expresses enthusiasm about the Play-Doh brand, highlighting successful back-to-school sales and new products like the Play-Doh scooter and a Marvel collaboration.

The paragraph discusses the successful growth and popularity of several entertainment brands and products. Beyblade X is gaining traction with new animated series and advertising targeting children, following its success in Japan. Transformers One has seen increased interest since the movie release, with expectations for more during the holiday season. Marvel's various offerings, including preschool content and core line products, are also performing well. The board game portfolio and Wizards' work on fifth edition revisions and Magic content are noted as strong. Gina Goetter mentions that Play-Doh and Marvel products are favorites among her young relatives and notes positive retail sentiment and support for upcoming holiday sales.

In the paragraph, Sean Rooney asks Gina Goetter about future cost savings opportunities, including the expected division between cost of goods and operational expenses savings for the next year. Gina explains that this year, 60% of savings came from the supply chain, but they expect a more balanced 50-50 split next year due to new strategies like design to value savings and network refinements. The operator then introduces Kylie Cohu from Jefferies, who asks about innovation at Scopely and their future relationship. Chris Cocks acknowledges the longstanding relationship with Scopely.

The paragraph discusses a partnership focused on mobile gaming, highlighting various successful collaborations like Monopoly Go! with Marvel and the potential to replicate these collaborations in virtual events. The partner, praised for its innovation and expertise in the mobile space, notably in engaging and retaining audiences, offers events like Tycoon Club to engage top players and shift business models favorably. The writer expresses optimism about revenue, as reduced platform fees could enhance royalty earnings. Finally, there's mention of a new Marvel Magic drop expected to sell out quickly, with an inquiry about its size compared to a previous Lord of the Rings set.

The paragraph discusses future plans and projections for Magic: The Gathering, including a series of collaborations with Marvel, the first of which will feature Spider-Man and is expected to generate significant revenue. Chris Cocks highlights the success of past Secret Lair drops, mentioning that these limited releases can achieve sales in the low to mid-single-digit millions. The paragraph also mentions upcoming releases, such as a Final Fantasy set in June and an unspecified third Universes Beyond set by the end of the year. The discussion concludes with the recognition that Magic's success is integral to Hasbro's overall health. The conference call then ends.

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