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hasbro management discusses q3 2013 results - earnings call transcript
Third quarter 2013 revenue Call 8: 30 a. m. on October 21, 2013Goldner -
Chief Executive Officer, Director and Member of Executive CommitteeThomas -
Chief financial officer, chief accounting officer and executive vice president StephanieWissink -
Piper Jaffray, a company that studies DivisionJaime meters. Katz -
Morning Star Company
Timothy A Research DepartmentConder -
Michael A, Research Department, Wells Fargo Securities Co. , Ltd. Swartz -
Research Department Sean P. McGowan -
Needham & Company, LLC, Research DepartmentCrum -
Steven Nicholas & Co. , Inc.
Gregory R. , Research Department. Badishkanian -
Research Department Citigroup Corporation
Goldman Sachs Group Limited
Gregory Hessler\'s Research Department
Bank of America Merrill Lynch, Research Department. Hendrix -
Barclays Capital, Research DepartmentJohnson -
American Capital MarketS.
Welcome to Hasbro\'s 2013 earnings call for the third quarter. [
Today\'s meeting is being recorded.
If you have any objections, it may be disconnected at this time.
I want to hand over the meeting to Ms at this time.
Debbie Hancock, vice president of investor relations.
Thank you all. good morning, everyone.
Our third-quarter earnings are posted this morning and can be found on our website.
In addition, our website also offers presentation slides containing information covered in today\'s earnings release and phone calls.
Press releases and presentations include
GAAP Financial indicators included in today\'s call.
Please note that whenever we discuss earnings per share or earnings per share, we refer to earnings per share after dilution.
This morning, Brian Gartner, president and chief executive of Hasbro;
Deb Thomas, chief financial officer of Hasbro, will review our financial performance and discuss important factors affecting our performance.
After the comments they have prepared, Brian and Deb will be happy to answer your questions.
Before we start, please note that in this phone call and issue --and-
In the next answer session, members of Hasbro\'s management may forward-
Statements on expectations, objectives and similar matters of management. These forward-
Comments on our products and entertainment programs may be included;
Expected product performance;
Business opportunities, plans and strategies;
Cost and cost savings plan;
Financial goals and expectations for our future financial performance.
There are many factors that may lead to significant differences between actual results or events and expected results or other expectations expressed in these forward-looking --
Look at the report.
Some of these factors are set out in our Annual Report on table 10.
Our last 10-
Q: In today\'s press release and in our other public disclosures.
You should review these factors with any forwarding
Statement made at today\'s conference call.
We have no obligation to update any forwarding-
Forward-looking statements made today reflect events or situations that occurred after the date of this call.
That being said, now I would like to introduce Brian Gartner. Brian? Brian D.
Good Morning, everyone. thank you for joining us today.
In the third quarter, we achieved growth in revenue, operating profit and earnings per share. Year-to-
Both our operating profit and earnings per share have increased, excluding fees.
We are moving into the key fourth quarter to launch innovative products, a comprehensive immersive brand experience and a comprehensive marketing plan with our retail partners and global consumers.
We have developed these capabilities and are executing our brand game blueprint to create shareholder value and achieve growth and shareholder returns over the long term.
Our focus on innovation drives our brand.
Many of our new initiatives are doing well.
Nerf Rebelle, My Pony Girl, TELEPODS, Furby and big hug Elmo all had a great start.
Overall, our franchise brand grew by 19% in the third quarter, in my pony, Magic: Party, Nerf, Transformers and Play-Doh.
Geographically, our emerging markets
Revenue rose 22% in the quarter, with many countries, including Russia, Brazil and China, experiencing strong growth.
Over the past few years, we have invested heavily in global infrastructure.
Hasbro offers above-
Average growth rate in emerging markets.
In addition, revenue from several developed markets, including France, Spain, Italy, Germany and Mexico, has also increased.
Europe, Latin America and Asia-
Pacific Airways revenue grew in the third quarter. Our U. S.
Revenue from the Canada division declined in the quarter as revenue from the Boys category was 2012, which included two very strong Marvel entertainment programs, the Avengers and the amazing spiders --
People, the battle for sales growth.
Consistent with this trendto-
Date POS overall decline in the USS.
Driven by the challenge of boy comparison
However, POS has grown in the category of girls, games and pre-school education.
Our highest revenue performance for the quarter was achieved in the context of uncertainty between consumers and retailers in developed economies, which we expect to continue until the fourth quarter.
Retailers remain focused on stricter inventory management.
Over the past two years, we have made significant progress in US execution and inventory managementS.
And Hasbro stock in our top 4S.
Retailers fell this quarter.
This improved discipline, coupled with close collaboration with retailers, helps us manage our business better during the important holiday season. The U. S.
The team has done a lot of work in developing and implementing new strategic directions for the USS. business.
We believe that in the next few years, our brand will be innovative in all categories and entertainment. S.
Prepare for future growth.
From Hasbro\'s overall category, the boys category declined in the quarter, considering the difficult comparison I mentioned earlier.
However, new innovations in key franchise and partner brands have brought growth in Transformers and Star Wars products this quarter. Move to the girl
Our brand plans to continue to drive positive momentum in the third quarter, resulting in a 29% increase in girls\' Category revenue.
Furby\'s worldwide promotion, the continued growth of my pony, the successful launch of My Pony Girl, Nerf Rebelle and Easy-
Bake, that\'s why the category grew for the fifth consecutive quarter. Built from in-
Deep into global consumer insights, immersive content and innovation, we are successfully expanding our girls brand globally.
My Pony Girl developed from the core values and insights behind my pony\'s global success.
We launched this entertainment program at the American theater. S.
Now, it is available on all screens around the world, with high ratings.
My little horse equestrian girl product was launched in the main market in August, and the sales are very good, and there are more markets to launch.
In addition, the game category has continued its growth momentum, with fourth consecutive quarter revenue growth and 6% growth in the fourth quarter.
Magic: The party brought strong gains again-over-year.
As well as several other game plans including Jenga, Elefun & Friends and all-
Featuring Angry Birds Star Wars, the new TELEPODS gaming platform has contributed positively to 6% growth in the third quarter.
In addition, the monopoly and Monopoly Empire continue to sell well.
Monopoly revenue was flat in the quarter, but it grew year-on-year --to-date.
The third quarter was also the first quarter of the Backflip Studios contribution, and we gained 70% ownership in July.
Backflip\'s contribution to game category revenue for the quarter was small, with a slight dilution of Hasbro\'s overall revenue for the third quarter.
The studio will launch a series of new games in 2013 and 2014.
Taking into account the expected time of revenue and related product development costs, we do not expect the financial position for the full year of 2013 to be affected.
In the area of pre-school education, revenue declined slightly this quarter, but revenue grew in our brand plan, which is our biggest effort. Play-
Doh revenue has increased in the quarter, and Transformers Rescue robots in the Playskool hero series have also increased.
Also, as I mentioned earlier, a big hug Elmo will have a good start.
We are very pleased with the early response of consumers to this highly interactive and engaging Elmo.
This great gaming experience has a big hug on almost every popular toy list during the holidays.
The growth of these brands partially offset the decline in revenue from other pre-school programs, and we are creating new business models to develop and monetize our brands.
For example, we decided to authorize the Tonka brand to a partner who can develop the product and actively support the brand for a long time.
Our income is higher now.
Profit royalty income, but within a yearover-
The base of the year is the lower dollar.
I talked earlier about the difficult Entertainment comparisons between boys.
Looking forward to the next few years, Hasbro and our partner brands have reached an unprecedented level of entertainment in film and television.
In 2014, Transformers: The Age of Extinction will be released in June 27.
Marvel has planned several movies for 2014, including Captain America: Soldiers in winter, magic spider
Man 2 and all-
New Guardians of the Galaxy.
In addition, Lucasfilm will also launch
The new Star Wars Rebel TV show on 2014.
On 2015, both Star Wars: Episode 7 and Marvel\'s Avengers: The Age of Ultron will be released.
From Hasbro, we continue to believe that Stretch Armstrong is a huge property and we are developing this brand for TV and movies in the coming years.
In addition, the third G. I.
Joe\'s film was developed with Paramount and director John Chu.
In terms of television, we are engaging audiences around the world through Hasbro Studios\'s global programming, combined with our partner\'s global television efforts, and building great characters and stories for brand development.
Hasbro Studios have been green since its inception
Lit up 900.
Original production time behind the Hasbro brand, including my pony, Transformers and the smallest pet shop.
As the success of my pony country girl on theater, TV, home entertainment and streaming platforms proves, activating our content on all screens is our content strategy
Our goal is to maximize engagement between our branded entertainment program and our audience, wherever they consume content. In the U. S.
The Hub Network continues to provide years-to-
Annual growth, recently announced the total daily rating growth for the eighth consecutive quarter, while maintaining the largest association
The children\'s cable network was viewed in percentage terms.
Finally, we continue to implement our brand strategy globally.
We do this to focus more on our biggest opportunities while leveraging the global resources we invest in to drive profitable growth in toys and games, licensing, digital games and immersive entertainment.
We have finished three quarters this year, and the key fourth quarter is just beginning.
During this holiday season, we have great innovations and brands in the market and are supported by integrated retail and promotional activities around the world.
Our team focuses on excellence in execution and consumer engagement to deliver successful holidays in an economic environment where many developed economies are still challenging.
With this, I want to transfer the phone to Deb. Deb? Deborah M.
Good morning everyone!
In the first three quarters of this year, while improving our profitability, we continue to drive our business globally. Maintain a strong balance sheet and strategically put cash into our business and return it to shareholders.
In the third quarter, revenue grew by 2% due to continued strong growth in emerging markets and overall growth in international markets.
Excluding fees, operating profit increased by 4% in the quarter and yearto-date.
Our balance sheet is strong and we are constantly creating healthy cash flow.
We have and will continue to cut costs from our business as our cost savings plan and savings targets are still on track to achieve $100 million in savings by 2015.
We recorded an additional fee of $4 this quarter.
1 million, or $0.
03 per share related to our cost savings plan.
The cost of pre-tax restructuring for the quarter was $3 million, and part of the pension settlement cost was $1. 1 million.
Our expectation of total savings for 2013 remains between $45 million and $48 million, with net savings expected to be between $13 million and $15 million for the whole year before pension charges.
The following review does not include pension and restructuring costs.
Today\'s earnings release and slide presentation contains a complete breakdown of these fees listed on the income statement by market segment and line item.
Look at our segment performance this quarter. The U. S.
Revenue and operating profit for the Canadian division fell by 5%.
The income of the girls category increased, and the game category was flat, partially offsetting the decline in the income of the boys and preschool categories.
As Brian discussed, the boys category is the biggest factor in driving this year --over-
Annual income declined.
In addition, the inventory levels of our top 4 retailers have also declined in the USS.
As retail partners continue to focus on strict inventory management. The U. S.
The Canadian division reported a 5% decrease in operating profit, but a slight increase in operating profit margin of 20%, compared with 19. 9% last year. On a year-to-
Revenue from the segment fell by 3% by date, but operating profit increased by 6% to 16.
6% of income comes from 15. 4% in 2012.
The increase in profit margin is mainly due to the good combination of income, including the continuous growth of Magic: We are also at the party of long-term investment
Long-term growth of business.
In the international market, revenue rose 11% this quarter.
The impact of foreign exchange on the quarter was $5 million, or 1%.
Emerging markets continue to double
Digital growth, 22% growth this quarter, growth in all three international regions, 9% growth in Europe, 14% growth in Latin America and AsiaPacific up 17%.
Girls, games and pre-school categories published annually at the international levelover-
Annual revenue growth.
The operating profit margin of international branches has increased to 18.
Compared to 16 1%. 3% in 2012.
As we discussed last quarter, this part of the overhead is usually possible throughout the year, and we get a higher revenue based expense leverage later this year.
This expense lever is the main driver of this year. over-year gains.
Net income from the entertainment and licensing sector also increased in the quarter, by 13%, behind the growth in entertainment revenue, and the increase in the sector in the quarter.
Operating profit for the entertainment and authorized sector declined, mainly due to an increase in reverse payment fees for the sector.
In addition, in view of the portfolio of projects delivered in the quarter, the amortization of Project production in 2013 increased over last year.
Look at our overall cost.
The percentage of sales costs as a percentage of revenue fell in the quarter, mainly benefiting from the portfolio, and to a lesser extent our manufacturing facilities are less costly and more efficient.
In addition, royalties declined due to reduced entertainment revenue
Based on attributes.
Although we have started to achieve some cost savings, we also have other factors that affect our cost level.
Product development increased year on yearover-
The year represented by the percentage of dollars and income.
First, the cost of product development was increased during the quarter.
Second, as we shared with you in September, we are making incremental investments in our magic-gathering brands.
Finally, we wrote off the early film development costs associated with films that have not yet been put into production.
As Brian mentioned, we continue to develop features for some films.
Intangible amortization also increased slightly during the quarter due to flip.
The third quarter was $1.
6 million of the cost
Based on our initial valuation, we expect amortization in the fourth quarter to be $6 million to $7 million.
We are in the final stages of the assessment process, but we expect to pay back about $35 million to $40 million over a month-
Annual time period based on related income.
Finally, SD & A has increased in the quarter, which is consistent with the factors we outlined earlier, including higher compensation fees, higher depreciation, and our investment in Magic: gathering brands.
Our quarterly results in the third quarter were below operating profit.
Total operating expenses decreased slightly from 2012.
At 2013 in the third quarter, our 50% share of the Hub Network lost $91,000 compared to a loss of $1.
8 million a year ago.
As we said last quarter, we expect the contribution of the Hub Network in 2013 to be similar to that in 2012.
The Hub Network plans to make pre-tax profits in 2014.
We recorded a $23 tax adjustment this quarter.
6 million, or $0.
£ 18 per share in connection with the settlement of a tax exam.
Excluding this adjustment, our base tax rate of 2013 in the third quarter was 26.
Compared with the base tax rate of 26, it is 5%.
In the third quarter of 2012, it was 6%, and in 2012 it was 27%.
We expect the basic tax rate for the full year of 2013 to be around 26. 5% to 27%.
The average diluted stock for the quarter was 131 shares.
8 million shares, compared with 132.
There were 5 million shares last year.
The diluted earnings per share are $1, deducted from the tax benefit adjustment. 31 versus $1. 24 in 2012.
Hasbro also continues to generate strong cash flow.
Operating cash flow is $47.
This quarter was $3 million and $438.
5 million in the next 12 months.
This includes $0. 165 billion in royalties paid to Disney after 12 years. month period.
By the end of the quarter, cash totalled $588.
$7 million to $696
2012 7 million.
In the third quarter, we paid $0. 112 billion for the investment in the back-flip studio.
We are still committed to making strategic investments in our business and returning excess cash to shareholders through dividend and repurchase programs.
The dividend we pay next quarter is $0.
It is scheduled to be 40 per share on November 15.
During the 2013 period in the third quarter, we repurchased approximately 644,000 ordinary shares at a total cost of $30 million and an average price of $46. 62 per share.
At the end of the quarter, the company bought back a total of one.
93 million ordinary shares of the Year-to-date.
On August, our Board of Directors authorized the Company to repurchase another $0. 5 billion of our common stock.
As of the end of the quarter, $0. 542 billion is still available in the current share repurchase authorization.
As of the end of the quarter, accounts receivable and income growth increased by 2%, and DSOs was the same as last year for 80 days.
Inventory fell by $16.
3 million decline drive in the US compared to last yearS.
The increase in inventory in emerging markets partially offset this impact, supporting the growing business in these regions.
As we mentioned earlier, our inventory in the USS.
Retail fell this quarter.
Overall, the inventory quality is good in retail and Hasbro.
With the key fourth quarter, Hasbro is well positioned in terms of innovative brand initiatives, compelling global marketing campaigns, strict execution and a strong financial position.
Brian and I will be happy to answer your question now. Question-and-
Our first question was by Stephanie\'s wisinsink Piper Jaffray. Stephanie S. Wissink -
Piper Jaffray, research DivisionDeb, may I ask you a question.
Step back and talk a little bit about the profit structure of the business as we investigate 2014 because you have more partner brands.
Can you help us understand the dynamics between gross margin and operating margin? Deborah M.
As we said in the past, Steph, we got a higher gross margin, and when we saw it, we defined the gross margin as net sales plus sales costs, when we were in entertainmentdriven year.
With this, our royalties are a little higher.
Still, we said earlier this year that we expect this year\'s profit margin to be similar to last year\'s and gross margin\'s point of view.
Therefore, with the increase in royalties spending next year and the increase in gross profit margin next year, we expect operating profit margins to remain in a similar range. Brian D.
Also, Stephanie, if you look over the long term after 14, 15 years, it is clear that with the development of our entertainment and licensing business, this is the category of our company\'s high gross profit margin and high operating profit margin.
Of course, as our international business, especially in emerging markets, continues to grow, and as we gain more revenue in these areas, we invest, over time, we are able to spread the cost to more revenue and increase operating profit.
The next problem with operatour haymez Katz is the Morning Star of the day line. Jaime M. Katz -
Morning Star Company
Research Department, can you talk more about the game category? You feel that you have made progress and where do you think this may go in the next year or two? Brian D.
We have added a lot of new initiatives to the game.
We are very pleased with several new initiatives launched in the second and third quarters of this year and continued in the fourth quarter.
The game is back, you know.
Half. fourth of course.
For the quarter.
TELEPODS were very strong in the early release of the platform and we are very satisfied with the continued focus on monopolies.
We have great, new innovations in many consumer categories, including our girls, gaming business.
We have also made some progress in innovating around price points and making sure that we launch classic games at high prices, which also makes spending during the holidays very strong.
Of course, we have also gained tremendous growth from Magic: gathering and continuing to invest in online components.
We have talked about combining the digital and analog experiences of different brands.
You see this in magic, you see this in TELEPODS, and you see this in different brands, opportunities for mobile games and face-to-face games like Monopoly and other brandsto-
Face outside of a board game or board game.
So I think our team is really focused on finding innovation in all the different game spaces.
We are very satisfied with our long-term cooperation.
Long-term prospects for gaming business. Jaime M. Katz -
Morning Star Company
Can you comment on Latin America?
I know your competitors are kind--
A little slower than your growth there.
Is there anything special you see that really moves there or resonates with consumers? Brian D.
The GoldnerOur team did a great job in South America and Mexico.
We see good results on POS, we have data.
We see that our own proprietary data makes a good profit in sales --in and sell-through.
Our brand resonated there with a lot of innovative promotions.
We also broadcast our show throughout the region in several markets, my pony, Transformer Rescue robot and Transformer Prime.
So we are providing a complete blueprint to these areas, and the result is speaking in itself.
The next question comes from Tim Conder\'s cooperation with Wells Fargo. Timothy A. Conder -
There are several problems in the research department of Wells Fargo Securities Co. , Ltd.
On POS, Brian, you mean here.
But can you provide any additional colors on the international market?
I know, again, the data is not the best, as you do in Western Europe and North America, but is there any other color depending on the geographical location?
Then, Brian or Deb, no matter who wants to comment on this, your channel inventory in the US is downS.
You say, especially your big four retailers.
Can you give us a little bit of a direction of how much your POS has dropped? Is your channel inventory roughly the same as this? Brian D. GoldnerOkay.
So, let me start with some markets around the world.
As you know, we have seen very strong growth in emerging markets, up 22%.
This includes strong growth in Russia, China and Brazil.
We have seen very good growth in France, Germany, Iberia, Norway, Italy, some European territories and Turkey.
So we have very good growth in many places.
Obviously, as we move into the holiday season, our brand will dominate in the third and fourth quarters.
Tim, when we really focus on POS, it focuses on the decline in the number of boys.
We see growth in games, girls and pre-school years-to-date.
Again, I think where we have this data, we are particularly focused on providing you with data from the USS.
Where we have this data
Our inventory in the United StatesS. are down mid-
Teenagers in the United StatesS.
Inventory grows with revenue.
As a result, our inventory is well placed all over the world, with more in Latin America and Asia --
The Pacific Ocean supports the growth of these companies, with stocks in Russia, Brazil and China increasing compared to last year, again supporting the growth of these companies. And the U. S.
Properly, inventory drops.
Our stock quality is very good and many of our new plans are being shipped by the end of the third quarter to the fourth quarter. Timothy A. Conder -
Research Department Wells Fargo Securities Co. , Ltd. , Brian, you said inventory in the United StatesS.
The collective fell 15%? Brian D.
In the middle of the dayteens. Timothy A. Conder -
Research Department of Wells Fargo Securities Co. , Ltd.
Your review of your POS there? Brian D. GoldnerYes.
The comment on the POS is if you look at the year --to-
Dating games, girls and kindergartens, POS has been launched.
The boys are down, and that\'s what drives our overall POS down.
The next question comes from Mike Swartz from SunTrust. Michael A. Swartz -
The research department just wanted to talk about gross margin.
This is much better than I thought.
I just kinda want to get through this.
What are the main drivers?
Can you give us more qualitative comments on this? Deborah M.
Thomas well, of course.
As we mentioned, we have our--
The gross profit margin we originally planned was about the same as last year.
We said at the end of 2012 that we expect to be able to keep the gross margin at their current level.
So what you see is actually a price balance for carrying forward the goods, offsetting any cost increase we generate on carrying forward the goods, sufficient prices for our new products, and getting the efficiency to change our USS.
The business structure reduces the drive for retailers to get goods in advance and puts more goods on the marketing and advertising lines of our consumers.
But you also see the efficiency of our manufacturing industry.
So when we started our cost savings program, we said we would start to achieve some benefits this year, but we didn\'t achieve 100% of the $100 million cost savings until 2015.
But we are starting to see that some of these manufacturing efficiencies are consistent.
You\'re starting to see some of the benefits of our magic growth: gathering the business, which is a higher-
The same is true of margin business. Michael A. Swartz -
The research department is great.
I think, just--
To put it simply, in an expansion year of 200 basis points --over-
I mean, half of the year is mixed, and the rest is the efficiency of pricing?
Does that look like this?
Or what you can do. . . Deborah M.
I mean, Thomas would say, of course, it\'s less priced and more mixed.
To a lesser extent, you begin to see the realization of efficiency. Brian D.
GoldnerAs we continue to cut the number of SKUs, but focus on the most important SKUs, the franchise brand is growing very strongly among teenagers, our business comes more from our top 10 and top 15 brands, and although there are a lot of new innovations and a lot of SKUs and R & D around these brands, it allows us to focus, but it is also possible to reduce the overall sku by focusing less on our third SKUs in the past, thus improving development and manufacturing efficiency.
The next question comes from the lines of Sean McGowan and Needham. Sean P. McGowan -
Needham & Company, LLC, the research department has several product-related issues if possible.
In kindergarten, I thought Elmo was so strong that I was a little surprised to see that it wasn\'t doing better.
You did Mark Tonka outsourcing.
Is there any reason for the decline in preschool? Brian D. GoldnerYes.
This is a good question, Sean.
If you shift Tonka\'s decline or Tonka\'s transfer from our brand revenue to royalty income, kindergarten will grow this quarter. Sean P. McGowan -
Needham & Company, LLC, Research Department.
Very helpful. Okay. Brian D.
I think this is a very simple way to look at it.
This is particularly prominent when you see the preschool education business, which continues to perform well globally.
It is clear that Tonka is more inclined to the United States. S.
So historically, it has had a greater impact on the United States. S.
More than our overall business. Sean P. McGowan -
Needham & Company, LLC, Research Department, when did Funrise take over the larger Tonka product?
Is it recent? Brian D.
I would say that maybe it was a commemorative deal about a year ago.
But it is clear that the transition will take several quarters.
I think when you go into the holiday between royalty income and income, you see the real first major impact of the quarter. Sean P. McGowan -
Needham & Company, LLC, Research Department.
How much is magic in this quarter-over-year?
You keep saying-
Well, in the last few quarters you \'ve talked about it rising by 20% or more than 25%. Brian D. GoldnerYes. It\'s up 30%. Sean P. McGowan -
Needham & Company, LLC, Research Department, more than 30%, OK.
What is driving? -
Can you specify more specifically what drives entertainment and licensing revenue for the quarter? Brian D.
You got it--
It is clear that you continue to receive licensed income.
When we host these shows around the world, you get the entertainment fee.
For the first time in this quarter, we got a little contribution from the reverse flip.
Obviously, the cost of reverse flip is a bit diluted with operating returns, and you can see that\'s why operating profits in the category are falling in part this quarter.
But in general, we-long-
The long-term trend is to increase entertainment and licensing through all the different sources of revenue we have there, including licensing revenue, digital game revenue, reverse flip, and TV, as well as our film participation. Sean P. McGowan -
Needham & Company, LLC, Research Department and remind us--
Things like room service.
Remind us, will the reverse flip stay in the E & L category for the foreseeable future?
I mean, this is the game,. . . Brian D.
Yes, it will.
It will be counted for entertainment and licensing. Deborah M.
The part that Thomas will entertain and license.
But Sean, you\'re right, the revenue will fall into the game category. Sean P. McGowan -
Needham & Company, LLC, Research Department, OK.
To clarify, did you say that revenue from Transformers and Star Wars has increased in the quarter? Brian D. GoldnerYes.
Transformers performed very well this quarter, and obviously we are very concerned about the TV support business.
The initiatives around TV really did what we said they would do, and that was to drive our business.
We also have a great generation of products that serve our collector audience.
But we see the impact of TV and TV support on global content, not only for Transformers, but also for my pony and my pony equestrian girl, of course.
So, really work for us.
Then in Star Wars, this is mainly related to some truly innovative products of the team portfolio ---
In particular the black series, I don\'t know if you \'ve seen or become familiar with it, but it\'s actually for our collector fan base.
They are very responsive to these products.
The next problem with operatotour is that he came from the Bank of Durham. Andrew E. Crum -
Steven Nicholas & Co. , Inc.
Brian, a few questions about magic: Parties.
Could you please remind us what is the retail strategy here?
We began to see more products in the professional field.
Remind us again of the seasonal nature of magic.
I think you mentioned before that the competition in the fourth quarter was very fierce.
Is that the same with magic? Brian D. GoldnerNo.
So let\'s start with the quarter.
It\'s more about releasing magic.
So it\'s more of an immersive game in other categories.
If the team launches a new version, it means a new series of cards around a new theme and additional characters or spells, which is the real driving force for the brand.
The brand tends to be more flat by quarter.
Obviously, based on the success of the new version, the team has just released a version called Theros, which is obviously a very good start compared to Ravnica a year ago.
This is what drives this business, not what is seasonal.
With the expansion of the brand, you will see more brands in mass retail, however, the huge advantage of this brand is still the place where we do not calculate POS and do not have NPD data, because hobby shops ---
During this period, the census of hobby stores and hobby stores also increased.
In fact, we still account for about 80% of our business, which is not counted despite the growing size of our data. Andrew E. Crum -
Steven Nicholas & Co. , Inc.
The research department got it.
Brian, I just want to go back--
Tim asked a question. of-sale.
I think you suggest that games, girls and preschool increase every year --to-date;
Boys, come down a year. to-date.
Is that the same for this quarter?
Would you like to quantify the situation for this quarter? Brian D. GoldnerYes.
So girls and pre-school classes have increased this quarter.
The game was flat and actually rose slightly in the first quarter.
The girls and preschool are on.
Boys fell year on year-on-year-to-date.
Again, I think what we see is the game, especially right and wrong.
We know they\'re fourth-quarter loaded.
We can see the early harvest of the new game plan.
We also launched a new monopoly, which took place earlier and earlier in the Monopoly Empire.
So again, I think, as far as POS is concerned, this is a typical time issue for the game, at which point in time you will have a new plan to ship in and the POS is in arrears.
But overall, what we see in the gaming, girls, and pre-school industries is very exciting. Andrew E. Crum -
Steven Nicholas & Co. , Inc.
Deb, can you remind us how much royalties we paid in the third quarter? In terms of the royalties you paid to Disney, what\'s left in 2013? Deborah M.
Thomas well, we have paid all the fees to be paid so far this year.
Let me pull that number out, Drew, and let you know what that number is. Andrew E. Crum -
Steven Nicholas & Co. , Inc.
The research department paid the center $25 million, will this be achieved in the fourth quarter?
Or has it been paid? Deborah M.
Payment by Thomas hat is expected in November. Andrew E. Crum -
Steven Nicholas & Co. , Inc.
The research department got it. Okay. Deborah M.
Over the past 12 months, we have paid $0. 165 billion to Disney.
But it does include some scheduled payments. -
According to the old contract between Ironman and Wolverine.
The next question comes from Greg Badishkanian and his party at Citigroup. Gregory R. Badishkanian -
Citigroup (Research Inc. ), Research Department, when you talk to retail customers around the world, are there any other differences in how they approach their holidaysS.
International? Brian D.
GoldnerWell, I think the way retailers take time off is related to what consumers think about the market, consumer income, disposable income, economic growth.
Of course, there are many new brands and new initiatives that we have introduced to the market.
So I want to say that in emerging markets, the emergence of the middle class, the people who enjoy the brand, the consumer\'s emotions are somewhat consistent with our results. Now, people enjoy the brand on multiple platforms, Hasbro is delivering our brand on all our different platforms, which is in line with the blueprint strategy, which really works for us
Then, by region, we see passion in Latin America, major European regions, especially Russia, Turkey and Eastern Europe, and Asia --Pacific.
I would say that from the perspective of consumer sentiment, the two hardest areas in the world are still Australia and the United States. S.
We solve this problem with great, new and innovative products.
That\'s why we see huge growth in several categories, as well as huge consumer takeout and enthusiasm for several of our categories.
But we also recognize that our business environment is more challenging, especially in these two areas. Gregory R. Badishkanian -
Citigroup research, do you think the inventory level is falling?
Teenagers in the United States are in the right place to take a vacation. S. ?
Or do you think you\'re kind of down there?
If so, it\'s yours--
Would you like to enter next year at a lower inventory level, which will help with your gross margin?
You need less discount and less promotion than the first half of 2014, which helps your salesin as well? Brian D.
If you look at the USS.
Business, it\'s really a long time
The term strategy we have activated.
I\'m not going to go back to every detail.
But we all know that. -
The team has adopted a great new strategy, more justin-
Time inventory, lower overall inventory levels, follow those brands that sell the best, work with our retail partners to get more promotion and more impact in retail for the most important brands
We see an average decline in inventory levels over time.
We feel very strongly that we now have the right inventory to enter the market in the third and fourth quarters.
We have a lot of new plans that have started to be released and we have highlighted them, but there are also some new games that have entered the fourth quarter.
Therefore, we are very pleased that we have the opportunity to have a wonderful holiday and recognize that the background is a more challenging consumer environment.
But Hasbro will gain more than a fair share during the festival because we have innovations, content and strategies that resonate with consumers.
The next question comes from Michael Kelter of Goldman Sachs. Ivan Holman -
Goldman Sachs Group Limited
This is where Ivan sits for Michael.
I hope you can give us a little bit of color from Furby, given the solid results of international girls. Brian D.
GoldnerWell, Furby is one of the drivers of our business\'s annual growthon-
This year, the pony business itself is also known as the core business of the pony business.
The introduction of my little horse riding girl obviously contributed to our business. Easy-
Bake\'s earnings are very strong this year. on-
A New Year-
Oven, and cans in black and silver
Bake the oven for everyone.
As a result, we see tremendous growth and advantages in our girls\' business in many known and new initiatives.
This is helpful, of course.
Of course, another major launch of the Nerf Rebelle line was very, very positive and started to be very strong. So, that all --
All of this contributed to the results of the quarter. Ivan Holman -
Goldman Sachs Group Limited
The research department is great.
With regard to wizards, growth seems to continue to maintain a strong momentum of more than 30%.
But can you give us a little bit about the color of 2014 visibility?
What are the factors here that can help maintain this momentum? Brian D.
GoldnerWell, we have done a few things this year, we have talked about it, we continue to invest and build magical capabilities online.
It\'s really to make more simultaneous play experiences.
We allow, you know. -
Give players the chance to play long distance games in this virtual online space.
We hope to have more games.
That\'s what the team is working on to expand the ability to host more game meetings at the same time.
This allows users who are more potentially or ineffective to re-enter the brand.
Of course, the team is also engaged in simulation business on a global scale, which allows many competitions to be conducted face-to-face. to-
In the hometown of people all over the world, in hobby shops, let people face in more competitive games.
So there are a lot of hands.
In addition to the virtual experience, we are also developing for this brand.
In many ways, magic is an early indication of how we can perform the game business in the future, allowing people to play magic in whatever form or format they want anytime, anywhere.
We did it.
So I think when you get into 14 years, the ability to expand SYNC game sessions over time, plus continue to release wonderful game versions and other elements in the blueprint, is all right for that
Over the past few years, we have seen the brand more than doubled in size.
We think the development prospect of this team is still good. Ivan Holman -
Goldman Sachs Group Limited
Then, maybe, Deb, a quick question about the cost side.
Looks like SG & A is still running at high speedsingle-
Although all costs and layoffs were cut earlier this year, figures of the digital type.
We know that the target is $100 million, and I think the net target could be close to $50 million in 2015.
But could SG & a be flat or down for a year, given these investments?
Or should we continue to expect it to grow at this rate? Deborah M.
Thomas well, as we said, we have always expected a certain degree of inflation within these figures.
What you see, we tried to point out in September that you got ---
You will see an increase in the compensation fee in the line project, as well as depreciation.
You have acquired Backflip, so these fees will now be paid in US dollars.
Our cost savings are also spread across sales costs, product development, advertising, and SD & A across P & L.
So while we expect our cost savings to reach $100 million by 2015, we are still achieving that and they will not all go into that line of projects, you also just have some offset fees in that line of projects.
Our next question is Greg Hessler from Bank of America.
Bank of America Merrill Lynch, the research department\'s problem is on the balance sheet.
I think you guys, you guys have a note that expires in early 2014.
At the last earnings call you indicated that you were considering your plan.
Is there an updated plan?
Given the interest rate environment, do you think you\'re going to go public faster rather than later to refinance? Deborah M.
Thomas well, our expectations, we said on our last earnings call and investor day, given the current circumstances, I will say again, you are right, and our expectations are, we will refinance for all. -
Most, if not all.
So when we talk, we get closer and closer to that date.
Bank of America Merrill Lynch, Research Department, are you considering shortening when you consider refinancing --
Long term debt or long term debtterm?
How should we think about the nature of refinancing? Deborah M.
Tomaswell, I think it\'s really a mix when we look at our long term collaboration
What is the regular capital deployment plan that best suits the plan.
The next question comes from Felicia Hendricks at Barclays. Felicia R. Hendrix -
Barclays Capital, research unit brian, is just to learn more about the success you have seen in the world.
I know there is no POS data in many international regions.
But for those you have it, can you give us some color? Brian D.
GoldnerSo we see again that we have a lot of POS gains in the three categories we see growing.
I have pointed out that it is clear that POS has dropped in the boy business.
The boy\'s POS has not declined in the world as it did in the country.
Similarly, the two biggest brands have driven a decline in boys\' incomes --on-
This year is the two plans of Manwei and Biye.
The leaves have had more impact and indeed more impact-over-
A year in the international market.
Marvel has more influence this year. over-
Business in North America, United StatesS.
The Canadian Division, just because of its historical advantages, and the recent international market has some additional advantages in Marvel.
Again, we are in movies like Transformers and Star Wars, and in girls, games, and pre-school, it\'s really good to see boys grow up. Felicia R. Hendrix -
Barclays Capital, research.
Then go to the next question.
You said in a previous question. -
I mean, you gave it to us. -
You have given us the data a few times and you just gave the point of sale for girls, games and pre-school education again.
That\'s what you said, I think. -
Even if POS defaults on shipping fees, you see the early takeout of the game --in.
Is the girl the same as preschool? Brian D.
Exactly the same.
You have a new plan.
A good example is that the pony country girl entered--
Catch up with the fourth quarter in time.
Obviously, you don\'t capture all the current POS data.
We did not report it because it was beyond the quarter.
But it is clear that this was early in the third quarter, but in the fourth quarter, the ship was more significant --
This is an example of many new initiatives compared to POS.
But we\'re trying to give you some indication of the early stages of these shipments-
The take-out is very good among the products shipped. Felicia R. Hendrix -
Barclays Capital, the research department, in fact, is a good topic because my next question is about Equestrian Girls, believe it or not.
Retail take-out seems to be positive, you say, and early retail take-out is positive.
Can you talk about what your pony shelf space looks like? If you think you have won some share in other areas of competition? Brian D.
GoldnerWell, I think when you look at retail as a whole, what we really see is that our retail shelf space is constantly expanding behind several categories of the company, whether in-
In addition to the aisle and promotional space, there are also aisles.
So for the rich girl, my pony Nerf Rebelle, play in kindergarten
Obviously across Sesame Street and the game, Doh and Transformers Rescue robot, I think our shelf space has expanded to be very commensurate with the new initiatives that we have partnered with retailers to show consumers
Globally, this is combined with licensed products from several of these brands, where we have good content and several categories of products from authorized vendors.
They also do so around the world.
As you can imagine, boy years-on-year is down.
The last question comes from Gerrick Johnson of BMO Capital Markets. Gerrick L. Johnson -
American Capital MarketS.
First of all, you have talked briefly about the Amortization of program production.
But can you give us a more detailed explanation of why it is going up?
Is there anything--
Is this what we should expect? Deborah M.
Thomas Gerrick, no, it really has to do with the projects delivered this quarter.
As we said in the past when delivering certain types of programming, this makes Amortization higher.
We just happen to offer more, especially this quarter\'s game show.
That\'s why it\'s really pushing.
Overall, we still expect our Project production amortization for the whole year to be consistent with the cash we spend for the whole year, such as $50 million to $60 million. Gerrick L. Johnson -
American Capital MarketS. Okay.
One more question.
Brand outsourcing or outsourcing-
Licensing plans, Tonka and Tinkertoy and the like, can you tell us which brands have now been outsourced or authorized and which brands have not been outsourced or authorized last year?
Because it does have a big impact on all the different indicators, such as sales, gross margin, inventory, etc. Brian D.
GoldnerI believes Lincoln Logs and small toys were outsourced last year and this year.
A new brand outsourced this year is Tonka, which is especially popular in the third and fourth quarters of this year compared to a year ago.
So I don\'t think there\'s--
A detailed list. I think go-
Looking forward, we may have found one or two other brands, but they haven\'t affected our income yet.
But it\'s not an exhaustive list, it\'s a focused list of strategies, and we think we have the right partners. Gerrick L. Johnson -
American Capital MarketS. Okay, great.
Maybe one more.
The magic is that the natural cycle of toys is a concern.
But magic is played by different people, different players, and slightly larger people.
Is there any difference between older players\' toys and the cyclical nature in the game compared to younger players?
Do you have any research on this?
How long do you think we can see the growth trend of magic itself? Brian D.
GoldnerLook, I think our team at Coast Wizards did a great job of continuing to bring great, new innovations, characters and, frankly, great stories to this brand.
They did it on multiple different platforms.
I think they spend a lot of time listening to the players and the audience.
You\'re right, it\'s not really a brand in the field of toys.
This is a brand played by an older audience.
I think in the process of thinking about why we put in more simultaneous online capabilities globally, the team did reflect that.
Our efforts around the world to bring magic: the face of gathering --to-
Face-to-face games for consumers in many areas have just begun.
So I think this is more about the richness of storytelling, gaming, immersive content, which is a symbol of our overall blueprint strategy.
They have been ahead in the past few years.
Now, you can see that the rest of the gaming industry is catching up with the pace they started.
OperatorI now wants to turn the floor back to Debbie Hancock for final comments.
Debbie Hanke thanked everyone for attending this conference call today.
The replay will be available on our website in about 2 hours.
Also, comments prepared by management after this call will be posted on our website.
Thank you. have a good time.
This is the end of today\'s conference call.
At this point, you may disconnect the line.
Thank you for your participation.