Hasbro

A world without games? No thanks!

Yep, life is a game - and unfortunately, last week I had to sit out a round. Attentive readers will have noticed that no article of mine went online last Sunday. That's because a nasty flu knocked me out completely. So at this point: "Sorry!" that I couldn't let you know somehow. To make up for it, this week I'm introducing a super interesting and at the same time somewhat playful company.

Hasbro is a global toy, board game and entertainment company that sells, among other things, popular and well-known board games like The Game of Life, Clue, Risk or, of course, Monopoly. Apart from board games, the company also offers lots of toys for kids and grown-ups alike. Besides Play-Doh modeling compound and Nerf blasters, there are also My Little Pony toys and Star Wars action figures. But how did the company get so big, and is it worth taking a closer look here for us shareholders?

The history and business model of Hasbro Inc.

Today's toy giant Hasbro has its origins in 1923, when the three brothers Herman, Hillel and Henry Hassenfeld teamed up to work in a joint textile business. At first, the 3 siblings with Polish-Jewish roots only sold fabric remnants, until in the mid-1920s they started using them to make hat linings and pencil box covers. When they noticed the success of their pencil cases, they hired their first 8 employees (all family members) so they could produce more. In 1926 they also jointly founded Hassenfeld Brothers Inc.. Shortly afterwards, however, Hilal got involved in another textile company and Henry took over running their own firm. He was a tough but also very smart businessman, so his company was able to hire more employees and significantly increase its profits even during the Great Depression of 1929. At that time, besides pencil cases, they also produced zippered fabric pouches that came already filled with school supplies. When a pencil supplier wanted to raise prices in 1935 and get into the pencil case business itself, they decided to set up their own pencil production. This business would ensure stable income for the next 45 years (in 1980 this business line was spun off from the company).

Toward the end of the 1930s, the Hassenfeld brothers expanded their product portfolio. Besides the first medical kits for nurses and doctors, they also launched a modeling clay. During World War II, the company marketed a children's air raid kit with toy gas masks. When they discovered the profitable toy market for themselves, they decided to invest heavily in the plastics industry. When Merill Hassenfeld, Henry's son and president of the family business, once watched his daughter putting on makeup with candy, it quickly became clear to him that they needed to launch their own children's makeup kit. In 1952, they scored their first big toy bestseller with Mr. Potato Head and, for the first time, ran TV commercials aimed directly at children. In the following years, they became an important licensee of various Disney characters. To launch an action figure for boys, who of course didn't want to play with dolls, they introduced G.I. Joe in 1964. This toy also quickly became an absolute bestseller.

From 1968 on, the company shortened its name to Hasbro Industries and went public as a stock corporation - albeit only with a small portion. The majority of the company remained in family hands. They also steadily expanded their toy business and even tried their hand at their own chain of kindergartens. But when this plan failed and several toys were banned as well, they had to concentrate on their core business again. In 1984, they acquired a large board game manufacturer, the Milton Bradley Company. In 1991, Monopoly distributor Parker Brothers followed. Over the years, a number of other smart acquisitions followed, and they were able to cement their position as one of the world's largest toy companies. Today, it's impossible to imagine the industry without them ...

How will Hasbro's business go in the future?

If you look at the toy industry, you'll quickly notice that the mood is definitely tense. Kids and teenagers mainly play video games on a console or on their smartphone. "Old-fashioned" board games just aren't in step with the times anymore. You can also see that the whole industry is struggling from the retailer Toys „R“ Us, which slid into bankruptcy in 2017. Of course, the big manufacturers like Mattel, Lego, Playmobil and Hasbro also felt the consequences of this bankruptcy filing. Now Toys "R" Us is attempting a revival with a new concept. They want to transform from a simple toy store into an experience store. Kids are supposed to be able to try out toys together with the sales staff - that's sure to minimize bad purchases. That's exactly what I see as a huge advantage over pure online retailers like Amazon. Hasbro has reacted too and is increasingly trying to focus on digital products and projects. They're also more and more often mixing successful brands to create new product lines. A good example of this is all the different Monopoly editions.

Do you remember my article about the Walt Disney Company? There I pointed out that the entertainment group is breaking records left and right with its movies. Avengers or Star Wars are extremely successful film series. And naturally, Hasbro's action figures and merchandise sell right along with them. And there's no end in sight here. Disney is planning a whole series of new movies, which will surely keep pushing the stock of today's candidate forward too. Besides Disney, Hasbro is currently also benefiting from Netflix. They arranged a deal there for a screen adaptation of the popular fantasy card game Magic: The Gathering.

But it's also a fact that the market in North America and Europe is slowly becoming somewhat saturated. The big growth opportunities are definitely lying dormant in developing countries. Prosperity is rising there right now, and more and more families can buy attractive toys for their kids. Especially in Asia, Latin America and Eastern Europe, the company should position itself more strongly so as not to miss this opportunity. Furthermore, Hasbro is also increasingly using social media channels to promote its products. You simply have to be where your customers are ...

Last but not least, Hasbro keeps broadening its business so it can more easily absorb weak business areas. For a whopping four billion US dollars, it bought the Canadian TV production company Entertainment One. Besides kids' shows like Peppa Pig, it now also owns Death Row Records - the label that once had hip-hop greats like Dr. Dre, Snoop Dogg and 2Pac under contract. Broader diversification always makes sense.

And what's next for the dividend?

Shareholders of the toy company Hasbro have been receiving a payout in the form of dividends since 1981. However, the company hasn't managed to raise the dividend regularly. In 2001 it had to be cut, and in 2006 it remained unchanged from the previous year. So the company will only be allowed to count itself among the Dividend Achievers after one more successful year. Currently, the dividend yield is 2.6 percent. But since earnings have dropped a bit lately, the payout ratio is currently 132 percent. That's definitely something to keep an eye on ...

Conclusion:
Hasbro is a broadly positioned toy and entertainment company that earns very good money with popular board games, action figures and other toys. It benefits from successful movies and series and is super well equipped for the future. Shareholders with kids of their own in particular should take a closer look at this company.