Hasbro, Inc. (HAS) Earnings Call Transcript & Summary

Hello, and welcome to Hasbro's 2021 Annual Meeting of Shareholders. Please note that today's meeting is being recorded. It is now my pleasure to turn today's meeting over to Brian Goldner, Chairman and CEO of Hasbro.

Thank you, and good morning. My name is Brian Goldner, I'm the Chairman and Chief Executive Officer of Hasbro. I would like to welcome you to Hasbro's 2021 Annual Meeting of Shareholders. I hope that you and your families are staying safe during these challenging times. Due to the ongoing pandemic, this year, we are holding our meeting virtually again for the continued safety of our employees and shareholders. We hope to return to an in-person annual meeting next year. Before we begin, I'd like to remind shareholders that in addition to having had an opportunity to vote, either online, by phone or through the mail prior to the meeting, during the virtual meeting, shareholders may vote and also ask questions as they would be able to do in an in-person meeting. The meeting will be divided into 2 parts. First, we will cover the formal business. After that, the formal meeting will adjourn, and I will provide a report to shareholders and take any additional questions not related to the proposals. Before we begin the formal business, I would like to thank and acknowledge the continued support from our Board of Directors. This includes our most recently appointed director, Laurel Richie, who previously served as President of the Women's National Basketball Association. I would also like to take a moment to recognize and thank Alan Hassenfeld, Crispin Davis and John Frascotti for their invaluable contributions to the Board and the company. They will each be retiring from the Board at the meeting. Their legacies will live on within the company. We will be fortunate to have Alan continue to provide guidance and support to the Board, management team and company as Chairman Emeritus. As former Chair, CEO and a member of the founding family of Hasbro, Alan has had an indelible impact on Hasbro. In addition to his leadership in the toy industry, his role in expanding it globally and driving innovation, Alan and the Hassenfeld family set a standard of community philanthropy and excellence that is unmatched. This standard remains central to how Hasbro operates and was a driving force in elevating purpose within our organization. Thank you, Alan, for your lasting impact on Hasbro, our industry and our communities. Lastly, let me thank our employees around the world for their tremendous efforts in sustaining and driving our business during these challenging times. They have shown what makes Hasbro so special. Now let's attend to the formal portion of the annual meeting. On the meeting center screen, you will find the agenda and rules of conduct for the meeting. For shareholders who previously voted, your votes are reflected in the results reported by the inspector of elections today. Registered shareholders and beneficial shareholders that have received a control number to attend the meeting are allowed to vote and ask questions during the meeting. If you have not voted or wish to change your vote, you may do so now by clicking on the link provided online. The online polls will close after I announced that the formalities are concluded. At this time, you may also submit questions by clicking on the message icon on the meeting center screen. Tarrant Sibley, our Executive Vice President, Chief Legal Officer and Corporate Secretary, and I will conduct the formal meeting today. Tarrant, have notices been sent to our shareholders with respect to the annual meeting?

Notice of the annual meeting was distributed to all shareholders as of the record date for this meeting beginning on April 1, 2021.

Do you have a list of the shareholders as of the March 24, 2021, record date?

Posted on the meeting center screen, we have available for inspection, a list of the company's shareholders as of the record date.

Is a quorum present at this meeting?

There are present or represented by proxy at this meeting the holders of at least 88.3% of the shares of common stock outstanding as of the record date, and a quorum is present.

Thank you. We will now take up the formal business of this meeting.

Mr. Chairman, there are 3 items of business that may be properly acted upon at the meeting. The first item is the election of directors. Hasbro shareholders are voting to elect 11 directors to the Board, each to serve for a 1-year term ending at the 2022 Annual Meeting. The nominees recommended for election are: Kenneth A. Bronfin, Michael R. Burns, Hope F. Cochran, Lisa Gersh, Brian D. Goldner, Tracy A. Leinbach, Edward M. Philip, Laurel J. Richie, Richard S. Stoddart, Mary Beth West and Linda K. Zecher. The second item of business is to conduct an advisory vote to approve the compensation of Hasbro's named executive officers as described in the proxy statement. And the final item for shareholders to consider and vote on is the ratification of the selection of KPMG LLP as the company's independent public accounting firm for fiscal 2021. The company's Audit Committee has selected KPMG and the company's Board of Directors has ratified this selection.

Thank you, Tarrant. Have any questions related to the proposals been submitted?

Let me take a moment to check with Debbie Hancock, our Head of Investor Relations, to see if there are any questions relating to the proposals. And I see that Debbie is indicating we have not received any questions, Brian.

Thank you, Tarrant. The online voting is now closed. Can you please report the results of the voting?

Yes. The inspector of elections reports that at least 92.9% of the shares represented and entitled to vote at this meeting were voted in favor of the election of each of the 11 director nominees. Accordingly, each of the nominees has been elected. The inspector of elections reports that at least 81.3% of the shares represented and entitled to vote at this meeting were voted in favor of approval of the compensation of the named executive officers. And as such, the proposal has been approved. Finally, the inspector of elections reports that at least 94.9% of the shares represented and entitled to vote at this meeting were voted in favor of the ratification of KPMG's selection as independent auditor. Accordingly, the ratification is approved.

Since we have now completed the formal business of the meeting, I declare the formal portion of the meeting adjourned. Now we'd like to proceed with a presentation to shareholders, and we will answer your questions. Let me first remind you of our safe harbor and the fact that we will make some forward-looking statements, and our actual results may differ materially from those forward-looking statements. For a discussion of these factors, I'd encourage you to look at the risk factors discussed in our SEC filings. [Operator Instructions] The Hasbro team met the distinct and unique challenges of 2020 with tremendous resilience and excellence. They leveraged the breadth of our portfolio, the global footprint of our business and the diverse and amazing talent in our company to lead our organization through the year. I cannot say enough about the quality of the people that I have the honor to work with every day. Throughout the year, we advanced our commercial and retailer programs and supply chain capabilities to meet the high level of consumer demand while managing expenses and cash. 2020 revenues were $5.47 billion, including $957 million from eOne. We grew operating profit margin on an adjusted basis, paid $373 million in dividends and finished the year with $1.45 billion in cash on our balance sheet. Our company is in good financial condition. Hasbro's differentiated advantage in play and entertainment is supercharging our brand blueprint and creating opportunities for growth driven by our robust portfolio of brands, capabilities and talent. We not only have some of the most iconic IP that connects with kids and families, but we also have properties with immense future potential that resonates with adults of all ages and fans across multiple dimensions. Hasbro's ability to [ reach ] the children and travel through to adults is a distinct advantage of our portfolio. Our blueprint thrives as we create value from our 3 businesses. As for our Consumer Products, including toys and games; Wizards of the Coast in digital gaming; and Entertainment, we have simplified our structure to maximize our growth drivers. In April, with our first quarter earnings, we unveiled new financial reporting segments, providing stakeholders with a clearer view to the drivers of Hasbro's revenue, profit, margin and cash generation. Our consumer products team met the high demand for games and toys in 2020 while continuing to drive innovation for future periods. We delivered $1 billion in e-com revenue for the year. The teams at Wizards of the Coast are shepherding some of Hasbro's most valuable brands, MAGIC: THE GATHERING and Dungeons & Dragons, as they amplify the player experience and expand into Entertainment and Consumer Products. With another record year in 2020, this team is solidly on track to deliver on our goal of doubling the size of Wizards by 2023. We have made a multi-hundred million dollar gain commitment to develop digital games in the near and long term while working with the industry's best gaming partners to activate our brands across platforms. Finally, the strength of our eOne entertainment team is powered by our unmatched brand portfolio for kids and adults which, in turn, creates new revenue and improved profit streams in entertainment, in merchandising and gaming. Production is ongoing, and we have more than 30 brands of Hasbro brands in development across both TV and scripted and unscripted and feature films and are on track to deliver the $130 million of in-sourcing synergies by the year-end 2022. At the center of everything we did last year and in every year is our community of Hasbro employees and stakeholders. To drive this forward, we recently appointed Kathrin Belliveau, a long-standing Hasbro leader in our CSR practice, as our first Chief Purpose Officer. I strongly believe Hasbro has both the opportunity and responsibility to lead as a corporate citizen across all aspects of our business. On D&I matters, I personally have prioritized reshaping our Board and our organization like the world around us and promote a culture of inclusive perspectives and experiences. As of today's meeting, our Board has 55% female representation. For the past decade, Hasbro has consistently been recognized for its corporate citizenship. When COVID-19 first began to unfold, our first and immediate priority was to take every possible step to ensure the safety, health and well-being of our workforce and, at the same time, do our part to support our communities and supply chains. Our COVID response included converting third-party facilities to PPP operations to produce plastic face shields for frontline health workers, providing meals, learning resources and toys and games to global organizations and partnering with the World Health Organization to enlist PEPPA PIG in encouraging handwashing. We provided more than $25 million in both financial contributions and donations of more than 3 million toys and games last year to organizations around the world. We remain steadfast in our priorities to invest to grow Hasbro, return excess cash to shareholders and to maintain our investment-grade rating while returning to target debt levels of 2x to 2.5x debt-to-EBITDA. Earlier today, our Board declared our third 2021 quarterly dividend payable in August. As we move toward the second half of the year, including the all-important holiday season, we believe we are well positioned to deliver growth with great innovation and content across our portfolio, including new NERF products and partnerships. Hasbro produced toys and games for PEPPA PIG and PJ MASKS, the G.I. Joe Snake Eyes theatrical release, the relaunch of the My Little Pony brand with the new CGI movie on Netflix and great new content from eOne, including Cruel Summer and Impact. This is only a small sample of what is coming over the rest of the year. I am now happy to take questions. Tarrant, are there any questions?

Brian, it looks like we've received 2 questions from the United Brotherhood of Carpenters, and I think Debbie Hancock is going to read to the meeting.

Thank you, Tarrant. The question as submitted is, Mr. Chairman, the carpenter funds hold a total of 308,200 shares of the company's stock. Congratulations on a solid year during a very challenging year. Today's public company executive compensation plans are largely formulaic, peer-related plans with simplistic annual say-on-pay voting reinforcing plan homogeneity. Could you or the Compensation Committee Chair speak to whether Hasbro might be better served by an executive compensation plan tailored specifically to the company's particular circumstances and its unique long-term strategic business plan? Thank you.

Well, thank you, first, for the question. So our Compensation Committee, as well as our Board of Directors, is very focused on a pay for performance philosophy. And we are constantly looking at the elements of our compensation, both in the short and long term, to ensure that they do reflect the strategic elements of our plan and that they do, in fact, incentivize our leaders to continue to perform at a high level, continue to add ESG elements and other elements of D&I to our program and ensure we are accomplishing both financial and nonfinancial objectives. And so we will continue to hone our strategy. We will continue to evolve our compensation programs and continue to engage with shareholders to ensure that we're hearing directly from them as well as view it in the marketplace as we chart our compensation course. So thank you for the question.

The second question is also from the United Brotherhood of Carpenters. Mr. Chairman, the topic of stakeholder capitalism as an alternative to shareholder capitalism and CSR and ESG considerations have received considerable attention recently. As long-term pension fund investors, the carpenter funds appreciate the sentiments embodied in the stakeholder capitalism perspective but feel that execution could be complicated. Could you discuss the Board's perspective on the concept of stakeholder capitalism and what principles the Board would use to balance the interest of varied stakeholders as it develops and implements the company's long-term business strategy?

Well, again, thank you for the question. So we are very focused on ensuring that we're achieving the financial objectives of Hasbro, both in the short term and through our strategic plan time horizon. We continue to look at the way in which we are achieving those objectives and then, at the same time, ensuring that we understand the broader stakeholder objectives and our role in the broader community, in ESG, in CSR and our role as a company that's led by purpose. In fact, as you know, this past fall, we, for the first time, announced that we will have a Chief Purpose Officer, and Kathrin and her team are really helping to ensure that we have the right balance in achieving our empirical objectives, our financial objectives each and every year as well as looking at our purpose and our role in the world to ensure that we're making the world a better place for children and their families. We want to continue to be a leading play and entertainment company. We believe we have built the capabilities, we have the talent, we have the innovation and we certainly have the momentum to ensure we achieve our financial objectives. So again, thank you for the question.

Brian, we have another question, which was submitted by [ Dexter ]. And I think there are essentially 2 components of it. So I'm going to read the first part and then come back to the second part when we're done with the first. The first is in light of the security breach at Colonial Pipeline, I ask the following. Are there protocols in place to protect information systems such as accounting, product development and personal data from hackers? And what is being done to review systems at risk? Is your security outsourced or in-house? And then the last piece of that first part of the question is how often are the company's security protections and weaknesses reviewed and are they tested to exploit potential bugs or mistakes.

Sure. So thank you for the question, [ Dexter ]. So again, Hasbro is constantly looking at its cybersecurity, its data privacy and ensuring that we have the capabilities. We use both in-house as well as third-party providers to make sure that we're constantly looking at the most modern ways of interpreting data as well as the capabilities in cybersecurity. We also have a cybersecurity committee that constantly is reviewing that at the Board level. And we, again, feel that we have best-in-class capabilities for both internal and external. We take this incredibly seriously. And it is an evolving area of our business where we want to continue to ensure we have the most contemporary capabilities and facility to manage cybersecurity.

The second part of the question from [ Dexter ] is related in part to the first one you just responded to and then also has a second element to it. So do Hasbro's supply chain vendors supply attestation that protections are in place for their critical systems? And will manufacturing move from overseas to North America or the U.S. to avoid future supply chain complications from the past year?

Yes. So a couple of things. We're always looking at our third-party vendors to ensure that they have the most up-to-date cybersecurity capabilities. And you should know that 20% of our revenues for the U.S. are being produced today in the United States. We have facilities across the United States, third-party facilities that are producing our products, our games. Manufacturing is largely in Massachusetts. We continue to produce MAGIC: THE GATHERING trading cards across multiple spots within the United States. We're constantly looking at ways to produce additional product in the United States. In fact, just a few years ago, we brought PLAY-DOH production back to the United States. And we are focused on ensuring that we have a safe and secure supply chain around the world. In fact, over the last few years, we moved an increasing amount of our production outside of China. Today, we have about 55% of our production in China. And we've gone to new locations, including Vietnam and India as well as other locations around the world, in Ireland; as I mentioned, in the United States, Massachusetts and other states across the country. So we continue to work with third-party vendors to ensure that they have the most updated cybersecurity as well as continuing to expand our manufacturing and to make sure that we are mitigating our risk as we produce products for the world. So thank you very much for that question. Okay. I believe we have no other questions. And therefore, I want to thank everyone who's joined us today. Please stay safe, and we look forward to speaking again in the future. This concludes the meeting, and you may now disconnect.