Hasbro, Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you, and good morning, everyone.

Joining me today are Chris Cocks, Hasbro's Chief Executive Officer, and Gina Goetter, Hasbro's Chief Financial Officer and Chief Operating Officer. We will begin today's call with Chris and Gina providing commentary on the company's performance before taking your questions. Our earnings release and presentation slides for today's call are posted on our investor website. The press release and presentation include information regarding non-GAAP adjustments and non-GAAP financial measures. Our call today will discuss certain adjusted measures which exclude these non-GAAP adjustments. A reconciliation of GAAP to non-GAAP measures is included in the press release and presentation. Please note that whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share.

Before we begin, I would like to remind you that during this call and the question and answer session that follows, members of Hasbro management may make forward-looking statements concerning management's expectations, goals, objectives, and similar matters. There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. These factors include those set forth in our annual report on Form 10-K, our most recent 10-Q, in today's press release, and in our other public disclosures. We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call. I would now like to introduce Chris Cocks.

Chris? Thanks, Fred, and good morning, everyone.

Hasbro delivered another strong quarter with record profitability. Revenue grew 15% and adjusted operating profit improved 52%, with growth across all three of our segments. Wizards of the Coast momentum continued, driven by the Magic flywheel, and our consumer products business posted another quarter of gains. We are increasing our outlook for the year, which Gina will walk through in her remarks. Despite all of the macro noise in the quarter, we stayed true to our superpower, inspiring a lifetime of play. We do that by building deep, lasting fandom around great IP. Magic is the clearest proof point. Magic revenue topped $600 million for the first time, growing 34% versus last year and beating the record we set last quarter. Strength was broad-based across tentpole releases, backlist, and Secret Lair.

The Hobbit, which launched in August, is the fourth best-selling set in Magic's history, and it did that with a leaner product lineup. Shipments of Reality Fracture, which debuted in early October, exceeded our expectations, and backlist and Secret Lair are on track for record years. Looking at Q4, Star Trek, our final set of the year, arrives in November, and early signs are encouraging. It's drawing Star Trek fans who are new to Magic, which is the core thesis behind Universes Beyond. You can see that demand in engagement. Hobbit pre-release participation across our 13,000 Wizards Play Network partners was the highest we've seen for a Universes Beyond release, and MagicCon Atlanta is sold out with badge sales up nearly 30% versus last year. The clearest proof is the player base.

Take the first nine months of 2026 and compare it with all of 2024, our last year without a tentpole Universes Beyond release. Organized play participants are up more than 40% with three months left in the year. Fans come in through IP they already love, and expanded distribution makes it easier to find us. They stay because deep gameplay married with best-in-class fan experiences distinguishes Magic from other trading card games. In 2027, we expect Magic to grow on top of a record 2026. Each of our six tentpole releases next year has a full product suite. We're scaling production capacity to meet demand, and our fan base and retail distribution keep expanding. At New York Comic-Con, we announced Marvel: Darkhold Destiny. Our prior Marvel sets brought existing storylines into Magic. This one tells an original Marvel story centered on a brand-new character and a companion comic.

All six sets next year are bangers, and we look forward to telling you more about them in the coming months. Turning to digital games, at Gamescom, we kicked off hands-on previews for Exodus and confirmed an April 7th, 2027 launch date. We're excited to get Exodus in front of players with more demos and announcements in the coming months. Warlock, our D&D action-adventure game, follows in 2027 and was the number one most wishlisted new game from opening night. We'll share more on both titles before year-end. Starting this quarter, we're providing additional information on our licensing business, and it's a model we like. It's asset light, which lets us focus on what we do best while leaning into our partners' capital investments.

Hasbro is a top five global licensor with more than $17 billion in annual retail sales, and we plan to build on that position across five priorities. First, we're building an enterprise-wide franchise system that aligns story, product, and retail around key moments. Peppa Pig's Baby Evie initiative is the proof point. Retail sales grew nearly 30% while we spent a third less on marketing. Second, we're scaling licensed consumer products, anchored by Peppa Pig, Transformers, and My Little Pony, and extending into Magic and Dungeons & Dragons. Third, we're accelerating location-based entertainment, where we're the number one licensor in the space. Fourth, we're diversifying digital licensing with a pipeline of mobile, PC, and console titles. Monopoly Go! shows the asymmetric opportunity when you partner with industry leaders. Fifth, we're using entertainment and music to create fandom that pays off across the portfolio.

What connects all five strategies is the same asset-light model, and these businesses generate nearly $700 million in annual revenue across consumer products, digital, and entertainment. Turning to consumer products, revenue grew 4% to $828 million, in line with our expectations, and our toy and game business delivered its fourth consecutive quarter of growth. Marvel product was the standout, with revenues up more than 35%, supported by theatrical releases from our partners at Marvel Studios. We are pleased with the momentum across our entertainment-led brands. Transformers' 40th anniversary has been a great moment for fans, as we brought the 1986 film back to theaters on Transformers Day, which coincided with strong retail events. In Marvel, Spider-Man remains strong following Brand New Day, and Power-Charge Spider-Man is featured in multiple holiday gift guides.

Doctor Doom product is on shelf ahead of the Avengers: Doomsday debut in December, with several items on retailers' top toy lists. We are entering the holidays with momentum, especially in our focus GEM Squared categories, those parts of the toy industry that are gamified, entertainment-driven, multi-purchase, and multi-generational. The third quarter shows what happens when we stay true to our superpower of inspiring a lifetime of play. Magic is deepening its player base and setting records. Licensing extends our brands through great partners who bring their own capital. Our toy and game business has grown four quarters in a row. That is a balanced portfolio, and it is the foundation for the outlook Gina will walk through. Before I turn things over, I want to thank our teams and partners around the world for delivering another great quarter.

Gina? Thanks, Chris, and good morning, everyone.

Q3 was our strongest quarter of the year, with revenue growth and margin expansion across all three segments. Revenue, profit, and cash flow each came in ahead of our expectations, and the quarter gives us the confidence to raise our outlook again. Net revenue in the third quarter was $1.6 billion, up 15% year-over-year. Adjusted operating profit was $541 million, plus 52%, with an adjusted operating margin of 33.9%, up 830 basis points on favorable business mix, cost productivity, and the benefit of tariff refunds, which I will detail in a moment. Adjusted earnings per diluted share were $2.90, up 73%, reflecting operating leverage, higher interest income, and a lower effective tax rate. Through the first nine months, net revenue of $3.7 billion grew 15%, adjusted operating profit of $1.1 billion grew 35%, and adjusted operating margin expanded 440 basis points to 29.7%.