Hasbro (HAS) recently held an Investor Day in which the relatively new CEO Chris Cocks laid out the toys and entertainment concern’s strategy for the next five years, reports Jason Clark, contributing editor to the value-oriented newsletter, The Prudent Speculator.
Full-year revenue is now expected to come in flat to slightly lower than last year on a constant currency basis. As the saying goes, the proof will be in the pudding.
However, management expects some new priorities — leaning into its biggest gaming brands to generate additional revenue, investing to build out a brand insights platform for data-based decision-making, and rejuvenating its direct-to-consumer and digital effort — to meet a list of financial objectives by 2027.
A cost saving’s program called Blueprint 2.0 has been drawn up with the intention of delivering $250 million to $300 million in benefits annually and an increased rigor in approving item development to weed out inefficient products that don’t meet a certain ROI hurdle.
Additionally, management has targeted mid-single-digit compounded annual revenue growth through 2027, operating profit growth of 50% over the next three years (with a 20% margin by 2027), and operating cash flow in excess of $1 billion annually, accelerating over the period.
The past year has been a whirlwind for the company. Pressure from activist investors since the death of former CEO Brian Goldner has resulted in the retirement of two board members, and a series of COVID lockdowns in China, the company’s largest supplier, has undoubtedly impacted results.
Hasbro said it has considered the sale or restructuring of its entertainment business eOne, another of the activists’ apparent goals, which it purchased right before the pandemic. Of course, it has already taken one step in that direction last year, having sold eOne’s music business.
Such moves are in a different direction from Hasbro’s previous strategy of using an entertainment platform to promote its toy licenses but could potentially unlock shareholder value and offer a fresh start, allowing it to focus on its strengths in toy making and gaming.
Down by a third in 2022, shares look cheap, trading for 14 times next-12-month EPS estimates and sporting a robust dividend yield of 4.1%. Our target price for HAS is now $118.