Hasbro (HAS) Stock Falls on Reduced Sales Forecast

  • Shares of toy manufacturer Hasbro (HAS) stock fell under pressure recently.
  • The company broadcasted conflicting views between near-term and longer-term projections.
  • Investors exited HAS stock as they generally deemed Hasbro’s outlook as too optimistic.
HAS stock - Hasbro (HAS) Stock Falls on Reduced Sales Forecast

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Although the market tends to reward optimistic corporate outlooks, for famous toymaker Hasbro (NASDAQ:HAS), analysts generally regarded its optimism as bravado without substance. Although management delivered an encouraging framework during the company’s investor day, observers noted a contrast between present-day realities and the forward vision. Initially popping up on Tuesday’s late-morning session, HAS stock struggled since then.

According to Barron’s, Hasbro unveiled a strategic initiative that may lead to significantly higher revenue and profit margins by 2027. Specifically, the company aims to generate a single-digit compound annual growth rate (CAGR) to hit over $8.5 billion in revenue by 2027. Last year, the toymaker rang up $6.4 billion on the top line.

Structurally, to achieve this goal, Hasbro will bolster existing brands and exit unprofitable ones. Ultimately, the company seeks to have three billion-dollar brands by 2027. Currently, it owns one.

During the aforementioned period, management projects an operating profit margin of over 20%. This contrasts with the 2022 projection of 16%. Per Barron’s, “Hasbro plans to cut costs by between $250 million and $300 million over three years, including $150 million by the end of 2023.”

“A rightsized portfolio will improve efficiencies and reduce cost in product development, manufacturing, and overhead,” said Hasbro CEO Eric Nyman.

Nevertheless, CFO Deborah Thomas acknowledged that while fourth-quarter results should reflect the benefits of the strategic initiative, the upcoming Q3 report will present challenges. Further, Thomas announced a cut to Hasbro’s full-year outlook. Management now models 2022 revenue to be flat or slightly down in constant-currency terms.

HAS Stock Must Contend With Reality

While HAS stock ultimately gained 1.4% on Tuesday’s session, it’s down more than 2% in the early afternoon hours. Investors appear to have trouble digesting the nearer-term pessimism — based on worrying indicators such as macroeconomic headwinds — against longer-term optimism.

Per Yahoo Finance’s coverage of Hasbro’s investor day, some observers deemed the company’s growth targets as too aggressive. As well, they raised eyebrows at how management intends to achieve broader profitability metrics. In particular, the projected 50% increase in operating profits over the next three years attracted skepticism.

JPMorgan Chase analyst Megan Alexander summed up Hasbro’s announcement as a “show-me story in the near-term with 4Q an even higher-bar considering three quarters of misses vs. the Street in its high-margin Wizards of the Coast segment while trends in its consumer products business appear to be deteriorating into a weaker consumer backdrop.”

Moreover, the current profile for HAS stock presents an unsettling picture for prospective investors. Free cash flow pings lower than desired. As well, the company features high debt to the tune of $3.5 billion more than cash on hand.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

Article printed from InvestorPlace Media, https://investorplace.com/2022/10/hasbro-has-stock-falls-on-reduced-sales-forecast/.

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