HAS
#Thank you, <UNK> and good morning, everyone
Our first quarter performance was in line with our expectations, and reinforces our full year outlook
As expected, 2017 began with a difficult comparison, yet we grew revenues 2%, and earnings per share 40%
Operating profit was negatively impacted by anticipated events in the quarter, including an extra week of expenses and a shift in product mix
Given the first quarter's smaller relative size to other quarters of the year, these changes are amplified and are expected to smooth out over the course of the year
Net earnings increased to $68.6 million, and earnings per share increased to $0.54. We experienced a $0.03 favorable foreign currency gain recorded in the other income line, as well as an $0.11 benefit from Hasbro's adoption of the new accounting standard governing stock-based compensation
This tax benefit was $0.03 higher than we forecasted in February due to the stock price appreciation over that time
Hasbro is in a very strong financial position, with positive consumer takeaway, strong earnings, and a healthy balance sheet
For the quarter, revenues in the U.S
and Canada segment increased 2%
<UNK>evenue growth in Hasbro Gaming and Emerging Brands offset lower Partner Brand revenues and a 1% decline in Franchise Brands, primarily due to the decline in MAGIC: THE GATHE<UNK>ING
In total, U.S
and Canada point of sale increased in the high single digits and remaining retail inventory is of good quality
Allowances during the quarter remained consistent with last year
Operating profit in the U.S
and Canada segment decreased 17%, or $13.6 million, due to the anticipated decline in MAGIC: THE GATHE<UNK>ING revenue and certain higher expenses
International segment revenues were flat, including a positive $3 million impact from foreign exchange
Within the international segment, Franchise Brands, Hasbro Gaming, and Emerging Brands revenue increased
Partner Brand revenues declined
Point of sale grew across all three regions: Europe, Latin America, and Asia Pacific
<UNK>etailer inventories are overall of good quality and while there are always certain regions with pockets of inventory, our overall inventory continues to be concentrated in new and growing brands
Operating profit in the segment was $0.5 million, compared to $2.9 million last year
The $2.4 million decrease was the result of product mix and higher expenses in the quarter
Entertainment and Licensing segment revenues increased 24%, driven by growth in digital gaming, including Backflip Studios
Segment operating profit increased over 100%, or $5.9 million to $11.3 million in the quarter
The improvement came primarily from the growth in higher margin digital gaming revenues
Overall, Hasbro operating profit decreased 9%, and operating profit margin was 9.2% versus 10.1% last year
In addition to a shift in product mix, the first quarter of this year had 14 weeks versus 13 weeks last year
Falling in the last week of the 2016 calendar year, the extra week does not drive much incremental revenue, but did drive incremental expense of approximately $7 million
Cost of sales increased 6% to 36% of revenues
This reflected the shift in product mix, including in Partner Brands and MAGIC: THE GATHE<UNK>ING revenues and the timing of lower margin closeouts
These closeout sales have a lower gross margin and are part of our normal annual activity, but were more highly concentrated in the first quarter this year compared to a year ago, as we aligned around marketing for entertainment windows
The decline in Partner Brands drove an associated 8% decline in royalty expense
Combined, cost of sales and royalties increased 30 basis points
Product development increased as a percent of revenues in the quarter, in part due to the incremental expense associated with the extra week and, more strategically, as we continue investing to drive innovation
SD&A increased as a percent of sales to 28.7%
We experienced higher expenses due to the extra week as well as investments in IT systems, higher IT depreciation, and higher compensation expense
We continue to expect full year SD&A to be in line with 2016 excluding the impairment charge as a percent of revenue
Turning to our results below operating profit, other income was $17 million versus an expense of $2.7 million last year
Other income was driven primarily by foreign currency transaction gains this year, versus a loss last year, and to a lesser extent, higher interest income
The underlying tax rate was 24.9%, down from 26.5% in the first quarter last year, and versus the 24.5% for the full year 2016. The quarter included $15.4 million in discrete tax benefits, primarily from our adoption of the new accounting standard governing stock compensation
As we discussed at Toy Fair, given the timing of Hasbro's equity grants, this impact is greatest in the first quarter
The $0.11 benefit was higher than we had forecasted in February and reflects the incremental benefit of our stock price appreciation over that timeframe
The anticipated EPS impact for the remaining quarters of 2017 is approximately $0.015 per quarter
However, as we experienced in Q1, that impact is ultimately dependent on our stock price
Diluted earnings per share for the quarter were $0.54. Our financial position is strong, including a healthy balance sheet with robust cash generation
We generated $411.9 million in operating cash flow in the quarter, and $916 million over the trailing 12-month period, ending the quarter with $1.5 billion in cash
Our capital priorities remain investing in our business, in particular, to enhance capabilities around the Brand Blueprint and returning excess cash to shareholders
In the quarter, we returned $81.5 million to shareholders through our dividend and repurchase program
On May 15, the first dividend at the 12% higher quarterly dividend rate of $0.57 per share will be paid
We repurchased 218,000 shares of common stock during the quarter at a total cost of $18.1 million
We continue to target repurchase levels for the full year in line with the $150 million we purchased last year
<UNK>epurchases are subject to market conditions and availability of U.S
cash
<UNK>eceivables at quarter end increased 1%, and day sales outstanding decreased one day to 72 days
Our accounts receivable are in good condition and collections continue to be strong
Inventories declined 10% in the quarter to $416 million
Overall, our inventories are in good shape, supported by disciplined execution from our team
With new merchandise coming in now, we're well-positioned for our second quarter focused on entertainment and new initiatives
In closing, our first quarter positions us well for 2017, with strong consumer engagement and takeaway, investments to drive long-term growth of our business, and new entertainment and innovations slated throughout the year
Now, I'll turn the call back to <UNK>
Morning, <UNK>
Well, everything else was kind of relatively consistent with the prior year, with the exception of we did have higher interest income this year, as we see rates going up a bit and with our cash balance, we do have higher interest income in that line
But the one thing that was different and we really don't forecast – it just is kind of what it is – is the FX gain and it was just a little bit higher than that
But your math is not that far off
So, we wanted to point that out
The other thing was the excess tax benefit, because the increase in our stock price, we had said at Toy Fair, we thought it would be about $0.08 in the first quarter and it was about $0.11. So, we wanted to make sure we highlighted that
And that was just the benefit that our employees got from when all of the vesting took place in the beginning of the – or during the first quarter
No, that falls into the tax line
But, our underlying -
I guess I'm still thinking about your question on our expectations versus not
We really tried to highlight and that was something that was different than our expectations that we laid out at Toy Fair and that is in the tax line
Yeah, we would say the only unusual thing that you really can't put your finger on is the FX gain
I mean, that's still dependent on where the rates are going
We hedged about 75% of our product purchases last year
And we're hedged a little bit less than that this year
The hedges are a bit less favorable than they were in the past, as rates have kind of leveled out this year
So, overall, we'll have a bit of a negative impact that impacts gross margin, but – and we'll take pricing to compensate for some of that as we go through the year
We still see our numbers kind of in line with what we set out for the full year, just as a bit of – because it's such a small quarter, little things can have such a big impact on our different percentages of revenue in the first quarter
But overall, for the full year, we still see our numbers in line with what we set out at Toy Fair
It's really hard to say
I mean, it's probably – most of our purchases come through in the third and fourth quarter, along with our sales
So, I would think that that would be it
But you probably just won't see it as much because they are such big quarters
Arpiné, let me address your first question
So, the extra week comes at the beginning of our fiscal year, which is the end of the calendar year
So it's essentially that week between Christmas and New Year
And really, a lot of retailers don't take a lot at shipments in that timeframe
Many of our offices are closed down
So, from a revenue standpoint, it truly is negligible, if we have any at all, but the expenses are fixed
Typically, we have to pay salaries
We pay things like that, rents
So our expenses are pretty much fixed
And that's why you get that extra week
It only happens once every several years
So, we don't talk about that much
But it's a 14-week period versus a 13-week period, and that's really why we highlighted that
So, <UNK>, I'll just grab the stock price one, quickly
We're just assuming a stock price similar to what we had around the end of our first quarter
So we've had some moderate box office before
Our share of T<UNK>ANSFO<UNK>ME<UNK>S, again, very modest share of box office, but that was booked in our Entertainment and Licensing segment and the box office related to this movie will be booked there as well
