孩之寶 (HAS) 2014 Q4 法說會逐字稿

Good morning and welcome to the Hasbro fourth-quarter and full-year 2014 earnings conference call.

(Operator Instructions).

Today's conference is being recorded.

If you have any objections, you may disconnect at this time.

At this time I would like to turn the call over to Ms. Debbie Hancock, Vice President of Investor Relations.

Please go ahead.

Thank you and good morning everyone.

Joining me this morning are Brian Goldner, Hasbro's President and Chief Executive Officer, and Deb Thomas, Hasbro's Chief Financial Officer.

Today we will begin with Brian and Deb providing commentary on the Company's performance and then we will take your questions.

Our fourth-quarter and full-year 2014 earnings release was issued this morning and is available on our website.

Additionally presentation slides containing information covered in today's earnings release and call are also available on our site.

The press release and presentation include information regarding non-GAAP financial measures.

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.

These forward-looking statements may include comments concerning our product and entertainment plans, anticipated product performance, business opportunities, plans and strategies, foreign exchange translation, cost and cost savings initiatives, financial goals and expectations for our future financial performance.

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.

Some of those factors are 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.

You should review such factors together with any forward-looking statements made on today's call.

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 Brian Goldner.

Brian?

Thank you, Debbie.

Good morning everyone and thank you for joining us today.

Hasbro's 2014 results highlight the power of understanding our consumers and audiences by garnering great consumer insights to drive innovation and build brands globally.

Superior retail execution, compelling storytelling and global consumer engagement across mediums further strengthens these brands.

At Hasbro, consumer insights and storytelling surround our brands and sits at the center of our brand blueprint.

This brand blueprint is the strategy our global teams are employing around the world and through which we are differentiating Hasbro in a competitive marketplace.

Through innovation and storytelling we are creating the world's best play experiences.

In 2014, the execution of our strategy resulted in revenue growth of 5%, improved profitability across segments delivered in adjusted operating profit growth rate of 7%, and an expanded operating profit margin of 14.9%.

For the year Hasbro franchise brands grew 31%.

This growth was driven by story led brands including My Little Pony and Transformers but also from innovation-based firmly in our global consumer insights for brands including Nerf and Play-Doh.

In total, six of our seven franchise brands grew in 2014, Magic: The Gathering, Monopoly, My Little Pony, Nerf, Play-Doh and Transformers.

Within our partner brand portfolio, great storytelling and content supported by innovation propelled Marvel properties to higher levels behind The Avengers, Spiderman and The Guardians of the Galaxy franchises.

Geographically, the global execution of our strategy drove international segment revenue growth of 8% in 2014 or 13% on a constant currency basis.

Six of seven Hasbro franchise brands grew in the segment.

Emerging market revenues increased 20%.

Our playbook to continue growing in these significant markets includes driving consumer engagement with innovative product lines for Hasbro and partner brands combined with television and film content distributed across mediums.

These elements make our brands more attractive to a growing middle class increasingly shopping for brands.

Emerging markets now represent 16% of our total revenues, a significant increase from a few years ago.

International growth however was not limited to emerging markets.

We grew across all major geographic regions including major markets such as the UK, Italy and Spain as well as Mexico, a developing market for Hasbro.

Although early, 2015 point-of-sale in major European markets is strong.

Entertainment and licensing segment revenues increased 15% and posted its highest ever annual revenues.

Investments to establish global licensing teams, our focus on franchise brands and global consumer engagement across mediums in addition to television and film drove these strong results.

Our 2014 performance highlighted the strength of our licensing efforts across multiple brands as both My Little Pony and Transformers fueled this growth.

In the US and Canada segment, actions we took over the past several years to reduce inventory, strengthen our channel strategy and enhance our digital and online capabilities helped return this segment to growth in 2014.

This strong execution coupled with innovation and content resulted in all seven of Hasbro's franchise brands increasing revenue in the segment.

If we turn the clock back to this time last year the outlook for Hasbro was strong and we delivered on that promise.

Yet as is true in our industry, delivering on that opportunity was not without its challenges.

Total Hasbro revenue growth of 5% was broad-based across franchise and partner brands and geographies but had to compensate for significant declines in both Furby and Beyblade.

In the US, shopping patterns continued to shift later in the year with the end of the holiday period representing an even greater percentage of consumer takeaway.

Point-of-sale trends were positive over the last four weeks of the year.

For the full-year 2014, US POS at our top five retailers was down 3% versus 2013 but grew more than 30% in our franchise brands.

If you remove the impact of declines in both Beyblade and Furby, total POS grew 4%.

In fact, if you removed either Beyblade or Furby, POS was positive in the year.

These same trends were true in the fourth quarter.

Additionally online point of sale continued to deliver double-digit growth in both the fourth-quarter and full-year 2014.

The positive trends at year end have carried forward into early 2015 with growth in the US point-of-sale continuing.

As I mentioned, international revenues grew 8% but were significantly impacted by the strengthening dollar.

The impact was most pronounced in November and December and in total foreign exchange translation reduced 2014 revenues by $93 million.

Excluding this impact, growth in the international segment would have been greater at 13%.

We anticipate foreign exchange to continue to be a headwind in 2015 and Deb will speak to this further.

In the US where currency was not a factor, the industry faced a significant challenge due to the ongoing Port dispute on the West Coast.

We put our contingency plan to work early on incurring higher costs to ship product to our East Coast warehouse.

As a result, we did not experience any significant issues in delivering our product and further grew operating profit in the US.

We anticipate some residual impact early in 2015 as a result of retailer inventory making its way to store shelves but we do not anticipate this impacting the full-year 2015.

I can't say enough about what a great job our teams did in minimizing this impact to Hasbro.

We achieved 5% revenue growth and 7% operating profit growth while addressing these challenges.

Let's discuss our performance.

As expected, given the robust entertainment slate in 2014, the boys category had a strong year with revenue growth of 20%.

Growth in Transformers, Nerf and Marvel initiatives more than offset the revenue decline in Beyblade.

2014 Transformers revenue were in line with 2011 movie year revenues with revenue gains internationally in particular within the emerging markets as well as licensing.

Nerf delivered its largest year in history behind incredibly innovative new product and impactful global marketing campaigns.

According to NPD, when combined together, Nerf and Nerf Rebelle would have been the second largest property in the US in 2014.

For Marvel compelling entertainment and innovation across several franchises resulted in strong growth for Marvel properties in 2014.

Each of these was a significant contributor to Hasbro's growth versus 2013.

The girls category posted its second straight $1 billion year growing revenues 2%.

We have made tremendous progress in building brands that girls around the world want to experience.

My Little Pony and My Little Pony Equestria Girls, Nerf Rebelle and the launch of Play-Doh Dohvinci all contributed to this growth and offset a significant decline in Furby, which was in its third year in English-speaking markets.

Littlest Pet Shop, our only franchise brand which did not grow for the full-year 2014 was relaunched in the second half of the year.

Revenues grew slightly in the fourth quarter across Hasbro and increased for the full-year in the US and Canada segment.

We continue to build our girls portfolio and have a number of exciting new initiatives over the coming years.

Our ongoing development of a more contemporary and relevant games business continued in 2014.

Magic: The Gathering and Monopoly revenues both increased as did revenue for several of our brands including Simon and the Game of Life.

Angry Birds, Dual Masters, and Twister were among the initiatives that declined in 2014.

Over the past few years we have invested in building our gaming capabilities across analog and digital platforms including new gaming experiences across our portfolio and investments in the digital platform for Magic: The Gathering.

We continue to build Magic: The Gathering as a compelling brand experience for our players and there remains significant growth opportunity globally.

Despite a slight revenue decline in 2014, our core gaming brands and our approach to gaming including our retail execution have evolved and strengthened significantly over the past few years.

We are well-positioned to continue driving innovative gaming experiences for global consumers.

Finally, the preschool category revenues declined 4% in 2014.

Throughout the year, Play-Doh and Transformers Rescue Bots performed very well but were offset by declines in core Playskool and Sesame Street.

In preschool, we are focused on Hasbro franchise brands and story led initiatives where we believe we can differentiate our offerings and deliver higher profitability.

While revenue has declined, today's revenue commands a higher margin and our profitability is growing.

For 2015, we have new initiatives across our portfolio of Hasbro and partner brands.

We look forward to sharing these with you on Friday at Toy fair.

In support of our brand development efforts, we also furthered content and digital capabilities last year.

Hasbro Studios continues to drive storytelling and brand activation.

Our shows are among the highest rated shows globally where they appear and today are airing in 100% of the territories into which they sell.

Storytelling is unlocking incremental revenue and earnings power in our business.

In October in the US, Discovery Family debuted in partnership with Discovery Communications.

We incurred incremental costs in 2014 associated with this transition but we believe these changes enhance the value of this network and its long-term profitability.

We are already seeing improved ratings on the network including the best December since forming the joint venture.

Discovery Family remains the most co-viewed network in terms of percentages of adults and kids watching together across all kids networks.

Hasbro Studio shows are prominently featured on the network.

Since debuting in October 2014, Discovery Family channel has aired more than 1000 total hours of Hasbro content with an average of 68 hours per week to date.

We also advanced our film strategy with multiple films in development with studio partners and the formation of Allspark Pictures.

Similar to television, we are making strategic investments with our resources and in selective instances, our capital where we believe we can deliver higher returns and more compelling brand experiences.

Finally, our continuous determined drive to build on our consumer centric insights, brands resonance and operational efficiencies are paying off with growth and profitability across all segments.

At the same time we are investing in future brands and capabilities while returning significant capital to our shareholders.

We look forward to sharing with you more about our plans for 2015 and beyond later this week at Toy Fair.

I would like to now turn the call over to Deb.

Deb?

Thank you, Brian, and good morning everyone.

As Brian said, 2014 was a good year for Hasbro as revenues and profits grew, we returned significant capital to shareholders, and our underlying financial performance was strong despite several challenges in the marketplace including a large negative foreign exchange impact at the end of the year.

Our business grew across segments, geographies and franchise and partner brands.

Our investments in new markets, in global teams, and in new capabilities and systems enabled this performance and our ongoing focus toward lowering costs and maximizing profitability is delivering results.

We ended 2014 in a strong financial position.

We generated $454 million in operating cash flow and ended the year with $893 million of cash on the balance sheet.

Before we discuss the year's results, please note there were a number of charges and benefits in both 2014 and 2013.

We have included a reconciliation of both years to reported amounts in today's release and the presentation accompanying this call.

During my discussion of our business, I will exclude these items as they do not speak to the underlying performance of Hasbro.

Looking at our segments for the full-year 2014, revenues in the US and Canada segment increased 1%.

Growth in the boys category offset declines in the girls, games and preschool categories.

All seven of Hasbro's franchised brands grew revenues in 2014 as did Marvel Properties.

This growth more than offset the expected declines in Furby and Beyblade.

Our US business is posting positive gains after several challenging years.

Franchise brand POS was up 31% in 2014 and we are well positioned from an inventory and brand initiative standpoint for 2015.

In Canada, revenue declined in the year but point-of-sale at our retailers increased.

Looking ahead to 2015 given Target's decision to exit the Canadian market, the environment will be more challenging.

Operating profit in the US and Canada segment increased 7% for the year reflecting the higher revenue levels and improved expense leverage.

In the international segment, full-year 2014 revenues increased 8% with 6% growth in Europe, 14% growth in Latin America, and 10% growth in Asia-Pacific.

Emerging market revenues increased 20%.

For the year, foreign exchange had a negative $87.7 million impact on revenues for this segment.

Absent the impact of foreign exchange, international segment revenues grew 13% and the emerging markets grew approximately 30%.

Internationally, the boys, girls and preschool categories all grew revenues in 2014 and more than offset a decline in the games category.

As in the US and Canada segment, strong growth in Hasbro franchise brands was further supported by growth in Marvel products.

Six of our seven franchise brands grew and this growth was partially offset by declines in Furby and Beyblade.

Operating profit increased 17% in the international segment on higher revenues and improved expense leverage.

We continue to make investments in certain international territories to build our brands, enhance our talent and build new capabilities.

In 2015, the international segment and Hasbro overall faced difficult comparisons given the current foreign exchange environment and the strengthening of the US dollar.

55% of our 2014 revenues were denominated in US dollars.

The next largest currency was the euro at 16% of revenues and all other currencies were less than 5% each of revenues.

Total Hasbro 2014 revenues translated at current foreign exchange rates would be approximately $250 million lower than what we reported.

Translation not only impacts our topline revenues but our profitability as well.

Given the impact from foreign exchange occurred so late in the year, it had an approximate $25 million negative impact on net earnings.

While we anticipate raising prices in many markets outside the US to recover some of the profitability in these markets, the comparison will be difficult.

Our final major segment, the entertainment and licensing segment, grew revenues 15%.

Growth in lifestyle licensing revenues for Hasbro franchise brands including My Little Pony and Transformers was a primary driver behind the record year for this segment.

The entertainment and licensing segment operating profit increased 28% on an adjusted basis reflecting the higher lifestyle licensing revenues in the year.

For Hasbro overall, higher revenue and improved expense leverage delivered higher overall profitability in 2014 both in operating profit dollars and margin.

Cost of sales as a percentage of revenue declined to 39.7% versus 40.7% in 2013.

As we experienced throughout the year, growth And entertainment properties including Transformers and Marvel as well as higher entertainment and licensing revenues were the primary contributors to this improvement.

With the growth in entertainment back revenues, royalty expense also increased.

For 2014, royalty expense increased to 7.2% of revenues.

This is in line with our stated expectation of being within the range of our five-year average of 7.3%.

Full-year product development expense increased to 5.2% of revenues.

Investment in our brands and innovation is ongoing and strategically important for Hasbro.

As we previously communicated, we began development of the Disney Princess and Frozen properties in the fourth quarter, ahead of revenues which do not commence until 2016.

As a result as anticipated, 2014 product development expense was above the high end of our typical product development range of 4.5% to 5%.

In 2015, we anticipate product development as a percent of sales to be in the range of 5% to 5.5%.

This expense should return to our more normalized range in future years as we begin to recognize revenues associated with the Disney Princess and Frozen properties.

Intangible amortization declined to $52.7 million for the year as some of our assets have been fully amortized.

Program production cost amortization declined slightly and remained near the 1.1% of revenues we projected for the full year.

Brian discussed the importance of storytelling and the role film and television has in building brands globally.

We will continue investing in content creation to build our brands.

SD&A increased 6%, slightly ahead of our revenue growth for the year.

As we discussed previously, we are making investments in our business including our digital capabilities with Magic: The Gathering, and Backflip where we have increased staff and had a full year of expense versus 2013.

Additionally, equity compensation increased in 2014 versus 2013 as did depreciation associated with systems in which we have invested.

Our efforts to lower our underlying cost basis have unlocked additional earnings power in our business while enabling us to invest in new capabilities, innovations and systems to drive the growth of Hasbro over the long term.

Turning to our results below operating profit for the quarter, other expense for the year was $8.5 million compared to $9.7 million in 2013.

Our share of the operating income of Discovery Family channel was $7.8 million versus a loss of $2.4 million in 2013.

We also record the impact of foreign exchange transactions in this line.

In 2014 given the dramatic swing in currency valuations during the year most notably the significant drop at year-end in the euro, ruble and real against the US dollar; we recorded an expense of $20.9 million versus an expense of $5.2 million last year.

There are also two large items in our reported other expense I want to highlight.

The first is that 2014 reported other expense included $29.8 million associated with restructuring our equity investment in the Discovery Family channel joint venture.

The second is that reported other expense for the year also included $36 million from the sale of our license rights associated with intellectual property.

Our 2014 underlying tax rate was 26.5% versus 25.8% in 2013.

For 2015, we currently expect our full-year underlying tax rate to be in the range of 26.5% to 27.5% reflecting continued higher anticipated earnings in the US.

During the fourth quarter in the interest of resolving a long-standing dispute, Hasbro reached a settlement for the years 2000 to the end of 2013 with the Mexican Tax Authorities.

This is in line with our previously stated expectations totaling $65 million in tax payments.

The settlement does not materially impact our overall tax rate in future periods.

We remain committed to meeting our tax obligations around the world and through the end of 2013 are no longer subject to audit in most markets.

For the full year, average diluted shares were 129.9 million shares compared to 131.8 million last year.

The actual amount of shares outstanding at the end of 2014 was 124.5 million.

Diluted earnings per share absent charges and benefits for the full-year 2014 were $3.15 versus $2.83 in 2013.

We returned $677.6 million to shareholders in 2014, $216.9 million in cash dividends, and $460.7 million in share repurchase.

Given the availability of cash in the US, we increased our repurchase activity in 2014.

Our expectation is that 2015 share repurchases will return to a lower more normalized level.

At year end, $64.2 million remained available in our current share repurchase authorization and today we announced our Board has approved a new $500 million share repurchase authorization.

Additionally we announced today that the Board has approved a $0.03 per share or 7% increase in the quarterly dividend.

The new quarterly dividend rate of $0.46 per share will be payable on May 15 to shareholders of record on May 1. We remain committed to investing in our business and returning excess capital to our shareholders through dividends and share repurchases.

Receivables at year-end were essentially flat with 2013 and DSOs declined one day to 76 days.

Absent the impact of foreign exchange, receivables increased approximately 10%.

Inventories declined $9.2 million versus last year and is of good quality.

Inventory in the US and Canada declined while inventory in growing international markets in particular emerging markets increased.

Adjusting for a negative foreign exchange impact, inventory increased 8%.

We also ended 2014 with good inventory positions at our retailers.

In closing, 2014 was a good year for Hasbro as the team delivered improvements in both revenue and profits globally and both our financial and cash positions are strong.

We believe in the underlying top and bottom line strength in our business and we are well positioned to capitalize on our innovative lines and robust entertainment in 2015 while we continue to invest for growth in our business for the long term.

I look forward to seeing you at Toy Fair later this week to further outline our initiatives and financial outlook for 2015.

Brian and I are now happy to take your questions.

(Operator Instructions).

Sean McGowan, Needham & Company.

Good morning, thank you.

I have a couple of questions if I can.

First, can you give us an update on what is happening with Backflip Studios and should we expect in 2015 to see some Hasbro Properties coming out of that studio?

Good morning, Sean.

We will start to see Hasbro Studios and Hasbro brands properties coming out from Backflip Studios this third and fourth quarter.

We have had a few that were more about network building than revenue generation early on.

But you will see a significant increase in Hasbro Studios brand, Hasbro brands properties.

The other element is they are working on some new exciting brands within the Backflip portfolio including something very exciting with DragonVale.

Did anything else go on with their other property during 2014?

No, they continue to have NinJump and Paper Toss and several other brands that they launched PlunderNauts and Seabeard, but DragonVale obviously is the largest brands, their franchise brand if you will and they are working on an exciting new initiative around DragonVale for the second half of this year.

Okay, thanks.

You may have said this in the remarks and maybe I didn't catch it clearly, what was the performance of Magic in the fourth quarter?

Was that up?

It was, yes.

Can you just remind us why the change from two sets -- I mean from four to two sets?

We actually for 2015, there are a couple of things going on so there are more than two initiatives that are going on that will launch in 2015.

We will have two sets but then we also have an additional, the core set, so in fact it is a transition and the team has got some pretty robust storytelling plans around that brand.

And again, we are very excited about what we are seeing in Magic.

The momentum in Magic continues.

The number of Friday gaming sessions has increased.

We are up to nearly 7000 every Friday where fans are getting together to play.

We have additional tournaments this year around several of the releases.

By summer we will have a tournament that will actually take place in three different countries around the world.

So in fact, I think Magic and opportunity for Magic players to play face to face in a number of different ways increases throughout the year.

Great.

And then the last question can you help us understand what the impact was if any to Hasbro from these West Coast Port disruptions?

Did you recognize some sales earlier than the fourth quarter and what do you think the impact will be in the first half of 2015?

You divide up our business between our domestic inventory that we carry into the US into our warehouses, our team did a tremendous job of thinking through what might happen with West Coast ports and brought more into the East Coast throughout 2014.

And we didn't advance shipments, we just took those shipments and took the extra time that we knew it would take to get to the East Coast.

It resulted in slightly higher costs although we expanded the US business' operating margin at the same time.

The impact really comes when you look at the way retailers take their FOB or direct import shipments because they in certain instances continue to bring those into the West Coast more prevalently and that is why we commented that early in the year you might see some shipments continue to come into the first quarter.

But that we think for the full year we don't see any impact to our 2015 numbers.

So would be impact to a Company like Hasbro be that open to buys might be lower in the first half because retailers are still taking a product that they thought would come in earlier, is that what you mean?

I think it is not prevalent among retailers.

I think there's probably one or two retailers that their direct import business will carry over into 2015 a bit.

And so I think in the first quarter certainly we are going to see a little bit of that come in not impacting Hasbro per se as much as maybe their total direct import shipments.

But we don't think that that has an impact beyond the first half of the year.

Thank you.

Mike Swartz, SunTrust Robinson.

Good morning, everyone.

I wanted to touch on, Brian, you made a bunch of commentary just around POS and maybe I missed some of it.

So can you maybe go over that again just in terms of how POS looked through the fourth quarter and into 2015 maybe by regions if possible?

Sure.

In the US what I was saying is that our POS in the fourth quarter and for the full year was down slightly single digits.

However was really impacted by high dollar sales items like Furby and obviously the dollar sales associated Beyblade.

So my point was if you took out either of those initiatives our POS for the year and the quarter would have been up.

So again, it is not related to the underlying strength of several of our segments, it was related to the absolute dollars.

And please keep in mind that POS doesn't count all of the sales that we have in the US because obviously Magic, four-fifths of magic is outside of the purview of major retailers and POS.

Inside NPD is about 90% of our sales so they are sales outside.

Then if you look at our international business, POS both for the quarter and for the full year was up significantly in a number of markets.

It was up overall with the exception of really two where we have data.

So it was up in Canada, up in Mexico, Australia, up in the UK, up in Spain and POS was down single digits in France and Germany.

And that is for the full year?

That was for the full year and the fourth quarter.

That is great.

You had mentioned specifically just the closing of Target Canadas.

Can you give us any sense of how large that business is for you and maybe how you deal with that in the year ahead?

I am assuming inventory will be adjusting around and some other things?

Yes, I think that in the short term it impacts our business.

Longer-term we have already heard from several customers who plan to expand their businesses in Canada who have had great success in Canada.

And so we think this is more of a short-term issue as stores and store locations close, change hands and perhaps reopen under new ownership.

And it is just a matter of working through that process.

Overall the Canadian business in terms of POS was quite good for the year and our brands continue to resonate quite well up there.

So I think this is a matter of working through some shorter-term issues 2015 related issues as we change out the kind of dominant retailers in that territory.

Okay, great.

Thanks a lot.

Stephanie Wissink, Piper Jaffray.

Thank you.

Good morning, everyone.

Just a couple of questions if I can.

Deb, one for you.

With respect to your comment that the revenue is now commanding a higher margin, can you just talk about the next couple of years, are there in the major investments we should be aware of or can we assume that this incremental margin continues to expand here over the next I would say one to two years?

And then, Brian, a question for you.

I am just curious as you think about the Star Wars opportunity, your international business and your global distribution platform has evolved substantially since 2008.

Does that change either how you think about the potential volume or the profitability of that business as we face that opportunity in the back half of this year?

Sure.

I will start with the brand and then Deb will come back and talk about expanding operating margins.

I think Star Wars, there are several elements to the brand that are both new and different as we go forward this year.

Obviously the new initiative we saw great success around the television that was on in the fourth quarter of 2014 and how it helped to drive the Star Wars brand.

We all know how content really drives that brand as well as many others.

We are very excited about the movie but the movie does come later in the year, December 18, 2015, and so therefore I would expect that our revenues for the first movie would be split across calendar years.

And I would hope that people would recognize that you would see a couple of quarters of impact of Star Wars this year and then into 2016 for several quarters and really into what becomes several years of Star Wars positive impact between the Trilogy movies and then the new stories that will be told.

The second piece as you ask about globality, clearly what we have seen in Marvel is the impact of Disney, our partnership with Disney, our increase in global scope and scale, their increased global scope and scale.

We are seeing a more internationally oriented Marvel business.

We also saw a more internationally oriented Transformers business this past year because we are having impact in so many territories and we would expect that to carry forward for Star Wars.

As we are starting to see increases in operating margin in those regions, we would expect over time to see increases in operating margin.

But recognize that today our international territories and emerging markets operating margin are below the Company average operating margin.

So I think that does have a mitigating impact in the short term and an expanded operating margin opportunity in the longer term.

The last piece I will note is that the excitement around Star Wars is significant and I think that there are a number of licensees that have the opportunity to share in that brand and therefore we are going to do all that we can.

We have amazing innovations in action figures, in role-play and games and several other categories.

We can't wait to show the line.

There are others that also will have the opportunity to sell and market Star Wars product coming this fall and then throughout the Trilogy Series.

The other things that are impacting our margin and we did see an improvement in our gross margin this year and that was due to the success of our brands particularly our franchise brands.

But one of the headwinds that we talked about for next year is foreign exchange.

Many of our product costs are denominated in US or Hong Kong dollars which have stayed pretty stable as the US dollar has strengthened against foreign exchange.

So while over the longer term we do have the opportunity, as Brian was saying, to really adjust for the currency impact because of the rate and piece of the change, it had a more significant impact for us in the fourth quarter but will continue to have an impact to us in 2015.

So as far as hedging as you know, we hedge a substantial amount of our product purchases but not all of it.

And I think on a blended basis, we have hedged about just under 70% for 2015.

So we will continue to be impacted by currency from that and we will continue to invest in Magic: The Gathering online and in projects that create the longer-term cost efficiencies.

So we've talked about in the past our $100 million cost savings initiative which we have established about $90 million through the end of 2014 and we have identified that final $10 million and we will talk a little bit more about that on Friday.

But for us it is really about investing in our business and putting things in place that create those longer-term efficiencies still allowing us to invest in creative storytelling and innovative product lines.

The one other thing that we have impacting our margins on the shorter-term basis is the development expense for our Disney Princess and Frozen line because I will just remind you we don't have revenue that coincides with that until 2016.

While we are continuing to drive, develop and create new storytelling, our cash expense in storytelling has declined 2014 versus 2013 and as we build efficiencies and experience in how to create content, we are able to sort of take that into account as we go forward.

Thank you both.

That is really helpful.

Deb, just one more follow-up on resin.

Can you just give us a level of exposure in your cost of sales that's related to resin and any benefit from oil costing coming down?

Thank you.

If you take out our total cost of goods, it is 39.7% this past year.

If you take the percentage that is resin, it is 5.7 percentage points of that 39.7%.

So actually labor and paper board are higher as a percent of cost as a component of our total cost of goods.

So what we have seen in the past, what we tend to see is that resin falls in arrears to oil prices because obviously it is a produced product beyond just crude oil.

So over time, we would expect to get some benefit but again, tried to size the impact overall.

Thanks, Brian.

Best of luck, guys.

Tim Conder, Wells Fargo.

Thank you.

First of all, congrats on a solid execution year and Brian, on the additional duties.

Thanks very much, Tim.

A couple of questions here.

Wanted to revisit your POS in Europe.

You called out a few countries where it was strong in Western Europe and a couple were just down a little bit.

But as a whole maybe if you want to include Eastern Europe or not, your shipments seemed quite a bit above that POS and just maybe help us with the difference between those two.

And then --?

Sorry.

Go ahead.

No, go ahead, Brian, because that may change my second question.

Okay.

So if we look at Europe, we said that revenues were up 6% for the year in Europe.

Obviously up stronger in emerging markets so Eastern Europe and Russia were up better than that.

Our inventories are very much in line with our sales.

If you look at inventories at year end you will see that they have really aligned to where the sales have occurred.

So across Europe what we saw is that POS increases were absolutely in that range.

UK for example was 8% POS increase for the year.

And I would say that inventories today are very much in line with those kinds of sales increases.

We don't see significant issues in pockets of inventory.

I think we have managed that very well.

The inventory is really following the rate of sale globally.

Inventories also obviously going into Latin America, we don't have specific POS data the way that it is reported through NPD.

We have our own data and we have seen great performance throughout Latin America.

Obviously the region was up by 14% and we saw great growth in not only Brazil but Colombia, Peru and into Mexico.

And I would say again we are very comfortable with the inventories we have and the inventories following our sales growth globally.

Okay, that is very helpful.

Then the second question is whoever wants to take this, as you look to 2015, and I know in general you don't give a lot of specific guidance, but as you look at 2015 on a reported sales basis, if currency rates hold at Friday's level or whatever near benchmark you are using here and given the headwinds in Canada, do you expect reported sales growth at this point for 2015?

Let me say it this way because we have looked at and really thought about where our business is in 2015 and you are right, we don't provide specific guidance.

But I would tell you that we feel very comfortable in saying that our underlying growth in our brands and our underlying growth in our operating profit in 2015 should be positive.

We feel we have the initiatives certainly across all of our major segments.

As we look at FX, there is really three elements to the impact of foreign exchange.

It was the size of change, the rate of change and then the range of currencies impacted.

In the case of the fourth quarter, all three came in at high levels if you will, the size of the change, the speed of the change and the rate of currency.

Obviously with a bit more time, we start to address that.

Deb noted that in her comments that we begin to address that as we look at our longer-term cost of goods and in the short term pricing for products to recover those revenues and earnings power in the country.

So it would be too early for us to say one way or the other because again, we don't know exactly where FX will be.

But I will tell you the underlying strength of our Company and the strength of our people running countries around the world, I feel very confident in the underlying strength of our brands and our trajectory for 2015.

So again, Brian, by saying underlying, you are saying excluding FX, you feel highly confident in both of those being up?

That is right.

Yes, the underlying strength means absent FX.

I don't know if you want to comment further?

As Brian said, we feel very good about the initiatives we have for 2015 and the underlying top and bottom line strength of our business.

But I will remind you in case you missed it in our prepared remarks, currency does have a big impact on a translation standpoint and we don't hedge for translation and at current rates it would have had about a $250 million impact on our reported earnings for 2014 -- reported revenue, sorry.

Last question.

Furby, Beyblade, really not a comparable factor for 2015 at this point?

Actually although we don't like to move beyond the comparisons, I think Beyblade becomes de minimis in 2015.

Furby has performed very well, was down to a significant degree but please remember that in non-English-speaking markets, Furby Boom just launched in fall of 2014.

So Furby still represents a sizable brand and business in our international markets and therefore will probably continue to talk about Furby comparisons for a bit of time.

Okay, great.

Thank you both.

Taposh Bari, Goldman Sachs.

Good morning.

I had a question on capital allocation.

It is nice to see that you are raising your dividend as well as your buyback authorization this morning.

But I was hoping you can speak to your philosophy around M&A and specifically acquisition criteria and where acquisitions fall on your list of cash priorities?

Thank you for the question.

If you look over the last five years, this management team has returned 143% of net earnings to its shareholders via both the dividend and the share buyback.

Last year nearly $680 million returned, $217 million of which was in a dividend, $461 million of which was in buybacks.

Deb will talk more about capital structure.

But you have a management team that is very committed to returning excess capital to shareholders.

We still also believe strongly in investing in our business and we are also building our brands and innovation, insight and storytelling capabilities organically as we speak and certainly we think given the global growth potential of something like Magic: The Gathering and its strong profitability that it enjoys, investing in that brand for longer-term growth is certainly warranted and I think something our shareholders would support.

In terms of specific M&A, there is not anything that we look at today where we say there is something out there that we are thinking about at all and that we continue to be skeptical about M&A activity.

I think that we focus on our brand blueprint and the acquisition we made in Backflip, we are working to really get Backflip to grow and to invest there so that we can be more a player in that mobile gaming space where we see both kids and casual players going.

And then just another philosophical question around your portfolio.

You have several owned brands and many licensed brands with good momentum today.

As we think about the Company let's say five years out, I know it is a long time from now, but how do you envision the owned segment of your portfolio?

You've got properties like Transformers, My Little Pony, Nerf, extremely good momentum.

As we look out five years from now, are we looking at a whole new set of brands whether organically created or acquired that could be needle movers within the portfolio or are Transformers and My Little Pony and the likes going to be even bigger contributors to the portfolio?

I think there are really three elements to our brand building and the way we look at brand building.

The first in the early 2000s was building our core brands which are now franchise brands and continuing to foster growth there.

Secondly, major brand adjacencies.

You have seen the success of things like Nerf Rebelle, Dohvinci, Equestria Girls.

You will continue to see those adjacencies and as we move forward here over the next bit including 2015, you are going to see some new brands and we will begin to add new brands.

Some of them will be vault brands that Hasbro owns and controls and some will be new brands that we invent and some may be some from our partners over the next period of time.

We will talk more about that.

John Frascotti will lead the discussion of that on Friday as we start to talk about 2015 and you will certainly see entrants in all three of those areas.

We do believe that our franchise brands can be much larger.

We are starting to see our brands get to highest ever revenues.

We talked about how Nerf is performing and certainly Play-Doh and My Little Pony and we have moved those brand significantly versus when we first started.

But there is still a lot of headroom and growth for our franchise brands globally over the next several years.

Thank you.

Best of luck.

Felicia Hendrix, Barclays.

Good morning everyone.

Brian, in your prepared remarks and throughout this call when you talked about the performance of girls you mentioned a number of things that were headwinds there.

But we did not hear you talk about the competitive environment particularly given Frozen and how popular that was.

Just wondering was that an impact at all on your girls business?

And if so, how should we expect that to continue to be a headwind if at all in early 2015?

We saw very strong growth with our franchised brands in our girls business.

The one headwind I talked about in girls was Furby and I would say that unfortunately to talk about Furby as a headwind, it is one of our brands but it was a headwind.

It was a headwind in the fourth quarter, had a large impact in the fourth quarter and frankly throughout the year but clearly the fourth quarter had significant impact.

If we look at the growth of our franchised brands, My Little Pony had a very strong year, up double digits both in the fourth quarter and for the full year.

Equestria Girls contributed significantly to that brand in addition.

Nerf Rebelle has really performed well.

Play-Doh Dohvinci is off to a very strong start.

So I would not view the Frozen success in any way as impeding our progress as a Company.

We think that Frozen and the Princess business is very complementary to what we are currently working on and Equestria Girls is very different than the Frozen brand and recipients of those two brands very complementary.

What we would say is a great opportunity for growth, we are very excited about the developments we are undertaking in 2015 around Frozen and Disney Princess and we are very excited about 2016 as we bring product out to the market and we may show you a few things later this week that are equally exciting for 2015 in our girls arena.

But I will leave that to the team to share that with you on Friday.

I guess that is a little teaser to get us all out.

Brian, folks have asked this question in a number of ways on a go forward here.

Especially in the first half of 2015, you faced different puts and takes because you have the headwinds that you talked about.

You faced tough comps in boys.

We have the Target, the issue of Target in Canada, you have FX, you have -- as Debbie talked about, the Port issues although you said that might not affect you as much.

Furby.

But you obviously also have tailwinds in the first half which you've alluded to which I am sure we will see some of that on Friday.

When you think about the headwinds, the tailwinds, are you optimistic that the tailwinds can offset the headwinds in the first half because that is really what investors are most focused on right now?

If you talk about the boys business, I know that we are talking about tough comparisons but we have a lineup as I indicated a year ago, we said we were entering the first year of an unprecedented era of new boys entertainment coming to the market and 2015 in our mind is even better than 2014.

You have Avengers that comes in early May, you have Jurassic World, we have Ant Man, The Fantastic Four and then obviously in December, you have Star Wars.

So I would say that as we look at the year, we feel very good about the underlying strength of our brands and we feel good about each of our categories of product that we are bringing to the marketplace.

What we obviously are contending with was a very fast-changing foreign exchange environment.

Over the longer term, companies like Hasbro have always been able to adapt to marketplace factors and can address those issues and we are already underway in addressing those issues.

But clearly given the size and rate of change of foreign exchange, I would say that that is probably in the short term the biggest headwind and everything that management and our teams can control we are controlling toward growth with good momentum coming into 2015.

I also mentioned that our POS is quite good, is up in the US and is quite strong throughout Europe, 2015 POS.

So we are off to a very good start.

Great, that is helpful.

Thanks.

Deb, I know you gave us a lot of data on FX and translation and transaction and all that and we can crunch numbers all afternoon and figure that out but should I just give up hope that you will ever give us just a nice easy sensitivity to work from?

Felicia, if I had my crystal ball and I could do foreign exchange, I would be happy to share that with you.

But I do think it is important if we just look at current rates, as Brian said, it really is the rate and pace of change.

So rates declined so significantly at the end of the fourth quarter and continued to go down into January and of late they have been a little bit more stable but still went down from there.

And at current rates would have had a $250 million impact to our reported revenues.

That being said over the long term we believe it will still have about -- any impact you model in from foreign exchange would have about a 10% to 15% impact to earnings over the longer term.

Great.

Thank you so much.

Greg Badishkanian, Citigroup.

Great.

Thanks.

Just going back to the US POS that was positive in 2015, which brands really stood out?

Did anything change in terms of momentum you saw in the fourth quarter?

What I had said, Greg, was just to be clear, absence either a Beyblade or a Furby you would see positive POS in the fourth quarter for our brands.

So what speaks to is the underlying strength of our brands particularly our franchise brands.

Our franchise brand POS in the full-year was up 30% and revenues were up 30% as well.

So we have seen strong growth in franchise brands obviously up some comparisons in comparing Furby and Beyblade obviously have some impact to overall POS.

And then of course Magic: The Gathering in the US is outside of 80% of that business is outside of the NPD data or the POS data.

And we have said that Magic was up both in full year it was up quite strongly in the fourth quarter with the new Khans of Tarkir launch and release which has been very popular among players.

As we look at the underlying strength of our brands, franchise brands and then our adjacencies, new brand adjacencies as well as new brands, we feel that we are well-positioned and have good momentum going into 2015.

Very helpful.

And retail inventory being in a good position, if we go back to last time -- this time last year I was trying to read the transcript, and I didn't really see a comparable type of comment.

So how would you characterize it last year?

Was it in a good position, worse off, and now you are in a better position inventory level wise?

I think that we certainly have inventories where we have sales growth.

I think they are really well lined up.

I think a year ago, we were still clearing through a little bit of Nerf inventory, maybe a little bit of Littlest Pet Shop inventory as we were changing over the brand for 2014.

So overall, we would say we began the year 2015 with inventories in a good place, our retailer inventories in a very good place, and our own inventories are strong as well and in the right spot.

US inventory is down, international inventory is up and it tracks quite well up against the sales increases we have seen country by country.

Very helpful.

And then I will just bring -- because you had mentioned Toy Fair -- is there one segment where if we are looking out at your new products that could really see an acceleration in growth from the level of innovation that you are going to be introducing?

Should we look out for one category in particular?

Actually, I would say that you are going to see innovation across all the categories of our brands, and you will see that on Friday.

You are going to see new brand initiatives, core franchise initiatives and adjacencies, new in several instances.

And we are going to take advantage of the momentum we have in our brands and add to that, and we've spent a significant amount of time looking at proprietary consumer research.

Our team over the last year has interacted with nearly 80,000 consumers, kids and parents in several countries around the world.

So our investments in consumer insight are really leading us to these innovations and marketing initiatives, because we want to understand our consumers and our audiences better than anybody else.

Good, looking forward to it.

Thank you.

Jaime Katz, Morningstar.

Good morning.

Can you guys just talk to any trends that you may have seen emerging in the preschool space that has made it more difficult for everybody to compete?

And then any color commentary you might have on the cadence of promotions at the retail channels since the end of the holiday season would be great.

Thanks.

In preschool, we have really seen that as kids have gotten a bit more media savvy at a younger age that clearly characters and story led brands are winning the day.

We have seen that in our own portfolio where our Transformers Rescue Bots have performed quite well.

We also have early creativity brands like Play-Doh which have performed incredibly well and are doing so globally.

It is one of our most global brands.

I think that our focus has been in core Playskool to bring some level of value to the Company back and getting our profit margins more in line with our expectations, ensuring that we have innovative products that are valuable to the consumer and our customers and also provide good operating return to Hasbro.

So looking at innovations and you will see some things at the end of the week that bring great innovation back to that core Playskool business and do so in a way that enables our customers and Hasbro to make money and I think that is one of the watchwords.

The other area that we are very excited about is in Sesame Street.

Again, I don't want to steal the team's thunder but there's some new product in that area for the third and fourth quarter that is very exciting and very intuitive.

So we are looking forward to launching that as well.

Eric Handler, MKM Partners.

Yes, thanks for taking my question.

Wondered if you could talk about the impact of the Discovery Family channel now that you are below a 50% owner.

How is that going to impact your P&L, how should we be thinking about your TV development strategy?

Certainly from our television development strategy as Brian mentioned earlier, we remain committed to our storytelling capabilities because we really see the benefit that has in our brand.

And while we develop programming for Discovery Family channel which we will continue to do, we then take that programming and leverage it by selling it internationally and through other channels.

So it really is more of an effort in that spend for us than just a US brand.

But what we have seen now with Discovery Family is that the network continues to perform well.

As we said, we had some charges that we kind of called out in the third and fourth quarter just because they are not ongoing but overall, the network has moved to a profit and we continue to expect it to do well.

We will still program a good part of the daypart and still our programming still is doing very well on Discovery Family channel.

So your overall programming hours you don't expect is going to be changing?

In fact we noted that since the relaunch in October, we had aired over 1000 hours of programming on the channel and it is on average about 68 hours a week.

So we are primarily programming the daytime kids dayparts.

We have a range of library shows that are running plus new shows that we are producing.

As Deb said, we are then able to take those shows out around the world.

One of the changes that we made as a result of the new relationship, the amended relationship is the ability to take some of our shows out beyond the channel for a first run, so Transformers, Robots in Disguise, which is the new series, will air globally on Cartoon Network beginning next month so that is a change.

So both domestically and internationally we will air on Cartoon Network.

What we are really seeing for the network is that it is performing quite well particularly for girls and younger boys but we have this opportunity for a show like Transformers that skews a bit older boy to go out to a network that is more suited for that programming.

Great, thank you very much.

Gerrick Johnson, BMO Capital Markets.

Good morning.

I was hoping you could discuss the timing of shipments for movie related products so when will you begin shipping product for Star Wars, Avengers, Jurassic World and anything else that might be material?

Typically the range for shipping product is somewhere between four and eight weeks before the launch of the movie.

So Avengers is May 1 so in that range and you will see the different retailers depending on how quickly they are setting.

Jurassic is mid June, Minions is July 10, Ant Man is July 17, Fantastic Four is August 7, and then Star Wars is December 18.

Star Wars you will probably see an effort that begins more in the fall with classic product and then rolls into the movie product about on the timetable I just outlined.

Obviously Star Wars will continue into 2016 and each of those as you will recall, Gerrick, will have prior to movie and then of course their windows as the movie hits all the different home entertainment windows, marketing around that, new products around that so it is not just a one and done window, it will carry forward for the year.

Okay, maybe to be a little bit more specific, when do you anticipate shipping the incremental Star Wars movie related product, will that be a back to school July/August type shipment or will be October resets?

When will that movie product hit shelves?

I am not going to get specific on the call here but I would say that you will see Star Wars related product on shelves in September overall and then movie product will feather in as we get closer to the movie.

Okay.

And then can you quantify the incremental cost for the buildout of Disney Princess infrastructure, how much did it hit the fourth quarter?

I know you gave us a range for R&D but can you give us sort of a dollar amount all in you are expecting to spend on this?

Well, we did say that as we mentioned in the third quarter we expected to be at or above the high end of our normal 4.5% to 5% range and did have an impact so our development expense was 5.2% of revenue for the full-year 2014.

We do expect that given development in our innovation but also the impact particularly of developing for the Disney Princess and Frozen line without the related revenue that we will be in the 5% to 5.5% range for 2015.

And since I am last here, I am going to ask a few more.

What was the sale of the licensed rights, what does that refer to?

We had a few non-core brands where we didn't control the brand where we had some underlying licensed rights that we sold to a third party.

Okay.

Do you care to tell us what they were?

No, I will leave it to them to talk about that.

Okay, okay.

And then one last one, please.

Your gross margin performance was quite nice in the quarter.

Are you now fully reserved for any additional markdowns that may pop up in the first quarter?

How do you feel about those reserve levels?

We feel very good about our reserves obviously related to inventory and to promotions and we enter the year with good momentum.

We talked about early POS and feel like we have the inventory in the right place both in the US and globally.

Great.

Thank you.

Great, thanks.

At this time, I would like to turn the floor back to management for closing comments.

Thank you for joining the call today.

The replay will be available on our website in approximately two hours.

Additionally, management's prepared remarks will be posted on our website following this call.

We hope to see many of you on Friday this week February 13 at our annual Toy Fair Investor Event and our first-quarter earnings call is tentatively scheduled for Monday, April 20.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.