Shares of Hasbro saw a significant decline on Thursday following the announcement of a sharper-than-expected fall in third-quarter revenue, prompting the company to recalibrate its full-year expectations for its largest operating segment. The toymaker reported revenue dropping to $1.28 billion for the three months ended September 29, down from $1.5 billion in the same period last year.
This figure fell short of the $1.3 billion average analyst estimate from Capital IQ, with revenue excluding the eOne divestiture down by 9%. The midday trading session reflected investor concern as Hasbro’s shares dropped by 6%. In its consumer products segment, the largest by revenue, sales fell by 10% due to soft volume, further compounded by a 5% decrease in revenue from Wizards of the Coast and digital gaming.
Additionally, revenue from the entertainment segment plunged by 17% once the eOne divestiture was excluded, a situation Hasbro attributed to the timing of deal deliveries. 'The softness in toy revenue can be partly explained by our strategic choice to sell fewer closeout items in pursuit of higher profitability rates, alongside a marked dip in action figure sales, particularly those related to Star Wars,' stated Chief Executive Chris Cocks during the earnings conference call.
He emphasized that the company considers action figures a long-term investment and remains optimistic about eventually revitalizing that segment. Despite the revenue challenges, adjusted earnings per share increased to $1.73 from $1.64 year-over-year, exceeding the consensus estimate of $1.29. This uptick in profitability was supported by an improved business mix, enhanced supply chain productivity, and lower operating costs.
For the full year, Hasbro now anticipates consumer products revenue to decrease between 12% and 14%, which is worse than its previous forecast of a 7% to 11% decline. However, Cocks noted that the rate of decline had 'significantly' eased compared to the first half of the year and expects this trend to persist into the fourth quarter.
The revenue forecast for the Wizards of the Coast and digital gaming segment has also shifted, now expected to be flat or down 1%, contrasting with the prior estimate of a decline between 1% and 3%. Hasbro reaffirmed its adjusted earnings target for 2024, aiming for figures between $975 million and $1.03 billion..