孩之寶 (HAS) 2016 Q3 法說會逐字稿

Good morning and welcome to the Hasbro third-quarter 2016 earnings conference call. At this time all parties will be in listen-only mode. A brief question-and-answer session will follow the formal presentation. (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 conference 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 Chairman, 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 third-quarter 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. 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 and today's press release and in our other public disclosures. 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. The Hasbro team delivered a tremendous third-quarter, the highest revenue and earnings quarter in Hasbro's history. Revenues grew 14% behind innovative products and engaging storytelling increasing across all major operating segments and geographies.

Operating profit increased faster than revenues up 19% and we continued investing to profitably grow for years to come. Our financial position is strong and we returned $112 million in cash to shareholders during the quarter.

As we develop Hasbro into a global play and entertainment company, we have built robust brand building capabilities including storytelling that supports an expansive brand portfolio. Today we are garnering a greater share of life than ever before by reaching broader demographics, play experiences and geographies. Our innovation, marketing and investments are informed by the global consumer insights we are uncovering as we engage with consumers and audiences across touch points and mediums.

The investments we have made in our digital expertise enable our global teams to develop immersive brand experiences which in turn elevate our connection with consumers and fans.

This has far-reaching implications and how we develop brands, engage with consumers, tell stories and spend our marketing dollars.

Our digital expertise is differentiating our brands. Thus far in 2016, videos Hasbro curated or created along with user-generated content garnered nearly 5 billion views.

Third-quarter revenues grew at a double-digit pace in both the US and Canada and International segments. Developed economies including the US, Canada, UK, France and Italy each grew revenues double digits. Emerging markets increased 16% with strong growth in Latin America including Brazil as well as in Asia including China.

The industry also continued to grow up 6% through August according to industry and Company estimates and Hasbro is gaining share. Importantly, we gained share in emerging markets such as Brazil and Russia as well as developed economies including the US, UK, Spain, Italy and Australia.

Global point of sale increased slightly in the quarter overcoming difficult entertainment comparisons at retail including a later set date for Star Wars this year and post movie declines for Jurassic World. Girls and games POS increased while boys and preschool declined. We are seeing strong POS as we start the fourth quarter.

In respect to Hasbro's third-quarter revenues, Hasbro franchise brands increased 2%. This growth was led by Magic: The Gathering, Nerf, Transformers and Play-Doh. Nerf grew for the 15th consecutive quarter while Play-Doh extended its growth streak to 20 straight quarters. In addition, Transformers and Magic: The Gathering revenues increased. Transformers Robots in Disguise animation as well as streaming content from Machinima is supporting product lines which have strong initial consumer reaction. Importantly, Transformers has good momentum heading into 2017 which marks the first of three years with planned major theatrical entertainment.

We have momentum in our gaming portfolio with growth in several brands driving the 13% increase in the category. Magic: The Gathering, Dual Masters, Pie Face, Simon and Bop It were among the brands posting positive gains. Despite most of Magic's revenue not being included in our POS reports, POS for the games category grew. Hasbro's gaming portfolio is unmatched and we are cultivating gaming experiences across a multitude of platforms including face to face gaming, off the board gaming and digital gaming experiences, notably in mobile.

One of our newest games, Speak Out, has generated more than 100 million online views. Consumer takeaway has been extremely strong and we are working to catch up to demand.

Within our mobile gaming portfolio, Backflip Studios is scheduled to unveil an all-new mobile game, DragonVale World, during the fourth quarter. This marks the first major release for this gaming property since Hasbro took a 70% stake in the studio.

Backflip has also unveiled several new mobile games this year based on Hasbro brands including Transformers Earth Wars and just last week, My Little Pony Puzzle Party. The My Little Pony franchise continued to drive brand awareness through the strategic use of entertainment, pop culture events and consumer products expansion. In a very competitive small doll segment, our holiday items and new launches are beginning to drive POS gains in many markets around the world.

In 2017, the My Little Pony movie will bring global audiences to all new worlds with both the core cast of characters along with all new characters.

In addition to our franchise brand and gaming portfolio, innovative new offerings at a variety of price points delivered growth for Baby Alive, Furby and FurReal Friends.

Within our partner brands portfolio, revenues increased 19% driven by positive contributions from Hasbro's shipments of Disney Princess and Disney's Frozen, DreamWorks Trolls and Yo-Kai Watch. For the full year, we now expect partner brand revenues to approach 30% of total Hasbro revenue.

Hasbro's line of Disney Princess and Disney Frozen is off to a strong start behind a favorable reception to our core shimmer fashion doll assortment. Overall, the brands are ahead of our plans for the year and we recently expanded our offering with new holiday items as well as new items in support of entertainment for Elena of Avalor and Moana.

Star Wars continues to be a top global property with strong consumer and retail support around the world. Rogue One, a Star Wars story product was on shelf September 30, which was several weeks later than last year's on-shelf date of September 4. This shift most notably impacted our US POS results. Our expectation remains that our 2016 Star Wars revenue may match the level we achieved in 2015.

In addition, Yo-Kai Watch and DreamWorks Trolls contributed to our partner brand portfolio gains this quarter. Yo-Kai Watch is now available in global markets including strong initial performances in several countries.

Our DreamWorks Trolls line hit shelves in the third quarter. Working closely with DreamWorks throughout the development of the movie, we have a robust offering of dolls, plush games and more in support of the global movie premieres over the next several weeks.

In closing, we have made great strides throughout 2016 including the third quarter which historically is the largest revenue quarter of our year. Hasbro and our retailers are well-positioned to deliver on what we expect to be a strong holiday season for Hasbro brands. Our initiatives are resonating with consumers and we have good retailer support. In addition, inventory available at retail and at Hasbro is improved from this time last year.

We are very well-positioned heading into 2017 when the entertainment lineup from Hasbro and our partners is among the best we have ever experienced.

I will now turn the call over to Deb. Deb?

Thank you, Brian, and good morning everyone. Our third-quarter results highlighted the strength of Hasbro's business across brands, geographies and our global team. Throughout 2016, we have exceeded our expectations in terms of performance both on the top and bottom line and we are set for a strong finish to the year.

14% quarterly revenue growth drove a 19% increase in quarterly operating profit. We grew margins while investing in our business in innovation across our brand portfolio, in storytelling across mediums, in our consumer product global talent and in digital expertise including projects for Magic: The Gathering and new gaming launches at Backflip Studios.

Over the trailing 12-month period, we generated $637 million in operating cash flow ending the quarter with $830 million in cash on our balance sheet. As we look to the full-year, we have good momentum in our brands including our new line supporting Disney Princess and Disney's Frozen. In addition, we are supporting more motion pictures in the fourth quarter than last year. We have the right inventory in the right places both at retail and in our warehouses to support this momentum.

For the third quarter 2016, we grew revenues in each major operating segment. In the US and Canada segment, revenues increased 16%. Revenue growth in the games and girls categories more than offset declines in the boys and preschool categories. Hasbro franchise brand revenues grew 2% with growth in Magic: The Gathering, Nerf and Transformers.

Partner brand revenues increased 13% in the segment behind contributions from Hasbro's line of Disney Princess and Disney's Frozen, DreamWorks Trolls and to a lesser extent, Yo-Kai Watch. Additional Hasbro brands including Baby Alive, Easy Bake, Pie Face and Furby also contributed to the year-over-year growth for the segment.

US point of sale declined slightly in the quarter given difficult comparisons to Jurassic World and a shift in timing for Star Wars on-shelf dates versus last year. POS increased in the mid-teens for the first three quarters and is positive to start the fourth quarter. Retail inventory continued to be of very good quality and has grown primarily from the addition of new initiatives.

Operating profit in the US and Canada segment increased 22% to $228 million or 24.4% of net revenues. Similar to prior quarters this year, higher revenues drove improved expense leverage.

International segment revenues grew 13% including a negative $3 million impact from foreign exchange. Within the International segment, the boys, girls and preschool categories grew while the games category was flat. Franchise brand revenues increased 4% with growth in Magic The Gathering, Play-Doh, Nerf and Transformers.

Partner brand revenues increased 30% behind Hasbro's shipments of Disney's Princess and Disney's Frozen, Yo-Kai Watch and DreamWorks Trolls. Hasbro brands Baby Alive and Pie Face also contributed to the segment's strong performance. Operating profit in the segment increased 17% to $133.1 million or 19.3% of net revenues. The International segment continued to generate greater expense leverage.

Through the first nine months of the year, currencies negatively impacted revenues by $49.1 million. Based on current economic trends, we anticipate a potential further impact of up to approximately $25 million for the remainder of the year. Despite an improved currency translation outlook from where we began the year, the impact from currency varies by market and our global teams continue to manage the ongoing economic impact on retailers and consumers from currency devaluations in several markets around the world.

Entertainment and Licensing segment revenues increased 8% behind revenue growth in consumer product licensing and digital gaming. Segment operating profit decreased $2.2 million or 13% to $14.1 million or 25.1% of net revenues. Higher revenues and lower program production amortization were partially offset by investments in building our consumer products team globally and higher expenses at Backflip Studios in support of new gaming launches. Boulder Media revenue and expenses are being recorded in this segment and were not material in the quarter.

Overall, operating profit increased 19% and operating profit margin gained 100 basis points versus last year. Double-digit revenue growth drove improved expense leverage for the quarter as well as year to date. For the full year, we anticipate operating margin in line with or up slightly from last year.

Cost of sales in the third quarter declined slightly as a percentage of sales and continued to benefit from growth and partner brands. This growth in partner brand revenue also led to an increase in royalties which at 8% of revenues is up 30 basis points year-over-year. We now expect royalties for the full year to be in a range of our year-to-date level of 8.1% of revenues and last year's level of 8.5%.

Program production cost amortization declined in the quarter and is running lower in 2016 than last year as we have delivered and are amortizing fewer television programs.

Content development and storytelling remain core to our strategic investments and we have spent $36 million in cash on television and film production over the first nine months of the year. In addition, during the third quarter, we acquired Boulder Media to enhance our animation and storytelling expertise.

SG&A as a percentage of sales was up slightly versus last year. The increase reflected higher spending on digital programs including Magic: The Gathering and Backflip. Compensation expense increased during the quarter and we anticipate will increase further in the fourth quarter as we true up two years of successful performance on long-term plans versus measures we set several years ago.

Turning to our results below operating profit, other income was $8.5 million versus $5.1 million last year. The improvement resulted from a small foreign currency translation gain this year versus a loss last year and to a lesser extent, higher interest income and growth in earnings from our share of the Discovery Family channel.

On a reported basis, the third quarter of 2015 included a $6.8 million gain from the sale of two manufacturing facilities. Absent the gain, other expense was $1.7 million last year.

The underlying tax rate was 26.1%, down from 27.2% last year and down slightly from 26.4% for the full year 2015. Diluted earnings per share was $2.03 compared to EPS of $1.64 last year.

Our balance sheet remains strong. Strong cash generation enabled us not only to invest in growing Hasbro but also to return cash to our shareholders. During the third quarter, we returned $112.4 million to shareholders, $64 million in dividends and $48.4 million in share repurchases. We have spent $106 million on share repurchases through the first three quarters of 2016. This is in line with our full-year target of repurchasing $100 million to $150 million which as always is subject to market conditions.

Receivables at quarter end increased 5% versus the 14% revenue growth and DSO's decreased 7 days to 78 days. Our accounts receivable remain in good condition and collections continue to be strong.

Inventories increased 36% versus last year. The overall quality of this inventory is good and our inventory availability has improved from this point last year. More than $100 million of the year-over-year increase is in Disney Princess and Disney's Frozen, Yo-Kai Watch and Trolls which are all new lines for Hasbro and for Pie Face which is a much bigger business this year than last.

We are also supporting multiple films in the fourth quarter including Rogue One. The later on-shelf date and our better inventory availability for this line resulted in Hasbro having more inventory on our books at quarter and then last year. At year end we believe we will have the appropriate inventory to support our lines as well as new initiatives occurring early in 2017 including Disney's live-action Beauty and The Beast film.

Finally, our retail inventories have grown in support of these successful new initiatives and growing Hasbro brands.

In closing, we have the right brands, the right assets and the right teams to deliver a successful year and we remain committed to taking the right strategic steps to position Hasbro for 2017 and beyond.

Brian and I are now happy to take your questions.

(Operator Instructions). Stephanie Wissink, Piper Jaffray.

Good morning, everyone, and congratulations on a very, very well done quarter. Two questions. One, just a clarification, Deb, on the inventory. I appreciate the $100 million of incremental brands that you didn't have last year but even excluding that, the inventory balance was still up into the teams. Can you maybe explain a little bit of where that inventory is basketed and where we should look for that inventory to progress here over the next 90 to 120 days?

Secondly, your operating profit in the US or in the North American segment was very, very strong. I am wondering if that is something that we should look for going forward to continue to be strong or if there was something unique in the quarter that allowed you to really stretch up into the mid-20s? Thank you.

Why don't I take the inventory question and then maybe Brian can talk about operating profit in the US.

But from an inventory standpoint, our inventory is up. If you recall at the end of the third quarter last year, we were chasing some product and we had only begun to start introducing or building to introduce Pie Face a little bit later in the year. So about half of the increase in our inventory sits in our International segments where believe it or not at the end of the quarter, we had an increase because of FX, just the way the rates landed at the end of the quarter versus throughout the whole period.

So the remainder of the inventory, the $100 million of increase really was due to

new lines. The additional piece is due to being in a better position for some of the things that are doing very well this year like Nerf and Play-Doh. In addition, we have Star Wars inventory which for Rogue One launch happened at September 30 which was at Force Friday September 4 for a year ago.

So overall this just contributed to having a bit more inventory in place at the end of the quarter but at a lower percentage increase than I think what we saw at the end of the second quarter.

As we look to year-end, we will be in a good position. We do expect inventory to be up but not by as much at the end of the year as we have some great new launches coming in the first quarter of 2017 including Disney's live-action Beauty and The Beast which happens early in the quarter. So we do expect to see inventory up but at a lower rate.

On the US business, Steph, we continue to see the team making great progress. They have continued to partner with retailers. We are seeing a range of brands and growth across our portfolio, growth in gaming and certainly significant growth in girls.

In the boys business, year-to-date continues to perform well. Obviously in the quarter, Star Wars is down but year-to-date Star Wars is up significantly. So again, that is an opportunity as we think about the full year.

So the team continues to do a very strong job in marketing and looking at expenses and working with retailers to ensure they have great inventory that is delivered more just-in-time and managing a strong P&L.

Thank you. Best of luck for the holiday.

Drew Crum, Stifel.

Thanks. Good morning everyone. Deb or Brian, I think you mentioned that you expect partner brands to comprise 30% of revenue for the year and you noted that Disney Princess and Frozen was outperforming your original expectations. What else is driving that increase? Are there other partner brands that are driving that mix shift or is there as short fall in one of our franchise brands? That is my first question.

Second question is on POS. I think you mentioned that it was up modestly in the third quarter but you were seeing an uptick at the beginning of the fourth quarter. Are you suggesting that you are seeing an acceleration? And any comment on POS trends for Rogue One albeit know it is early in the fourth quarter but just any comment there.

You are right, Drew. We are in fact seeing really strong POS trends entering the fourth quarter particularly in the US. We saw a little bit of softness in POS in the late summer, July, August period. And then in September given the shift in Star Wars as well as the impact from Jurassic, that impacted our US POS.

Internationally, we are seeing very strong POS up double digits in Europe, up in Latin America, up year to date in Asia-Pacific. And then in the quarter in Asia-Pacific particularly in Australia, recently we have seen some retail issues with a retailer where there was just less inventory taken and a little bit less of a sell through and therefore impacted that number, the Asia-Pacific number because of Australia.

So overall, we feel very good about the POS trends year to date and the POS trends going into the fourth quarter with a little bit of a note in the third quarter due to some of those timing shifts and some of the brands that have come down significantly versus year ago.

As we think about Disney Princess, it is performing incredibly strongly and it is ahead of our original plan for the year. Our global teams in partnership with Disney are doing an excellent job. And in fact, we are seeing great growth from areas like our Royal Shimmer fashion dolls, that is the all 11 princesses not even including Anna and Elsa. For the holidays we have a big presence coming for the Royal Dreams Fashion Doll Castle so we even give girls great places to play with their dolls.

Deb mentioned some of the entertainment but also note that in 2017 in the first quarter we will have the broadcast premiere of Frozen, we will have a holiday special next year from Frozen. We also have Elena of Avalor which is off to a very strong start as a television initiative. And then we are also very excited about the launch of Moana. So all of those elements leading to a very strong Princess business and we have made great strides in making great progress there toward our long-term objective of growing that business far beyond where it had been in the past.

Okay. Thanks, guys.

Felicia Hendrix, Barclays.

Good morning. Thanks for all the POS color. I think some people were curious why it wasn't in the deck. But if you wanted to comment on that but that is not really a question I have. But if you could comment on your POS ex-Star Wars and Princess, that would be helpful.

Yes, the POS for our business as I said, Star Wars POS internationally in the quarter was very strong, Princess POS is strong but it is a new initiative. So we have underlying strong POS from a number of categories. Our games business was up in a significant manner. Several girls brand beyond Princess and Frozen were up. In fact, the girls business would have been up in the third quarter absent Princess and Frozen.

So our boy's business because of Nerf where Nerf business is up significantly, Transformers business in the quarter was up. We are really seeing how the addition of fan oriented content that started this season on Machinima combined with our core boys entertainment combined with our preschool boys entertainment is really driving that brand and we are going to take it to the next level and set it up really well for 2017 when we go into a first year of three anticipated movies over the next three years.

So we've got a lot of strength in our portfolio beyond Disney Princess and Frozen and Star Wars.

Okay, helpful. Thank you. And then you had this shift in Force Friday and I think it just causes a little bit of modeling confusion. I was just wondering if you could help us understand like for like POS for the Force Friday weeks?

Yes, so as I said, POS internationally wasn't as impacted by the shift. The shift is really around a lot of the way the US retailers really went after Force Friday a year ago and this year it was September 30. So that was our week 36 last year which was in our third-quarter and this year it is our week 40, which is in our fourth quarter. So as Deb noted, it means that the inventory for that initiative was on our books at the end of the third quarter, it wasn't really yet really out at retail as significantly it was a year ago so therefore you didn't have that rate of sell through on POS and so you saw that reflected in our third-quarter POS particularly in the US business.

Internationally you didn't see quite the same impact. So overall, I would say a couple of things. First, Star Wars year-to-date sales, revenues are up significantly through the third quarter so as we look at the full-year, we look at International POS and the POS we are seeing coming into the fourth quarter now that we have inventory, we again reiterate our belief that 2015 levels could equal 2016 levels for the Star Wars brand.

The reason why I ask is mainly that there is some expectations in the media community for Star Wars box office to be down year-over-year in the double digits. So despite that, you are still confident in Star Wars being flat year-over-year?

Look, as I have said, we are up significantly year to date. I looked at a lot of data coming into this conversation and I will tell you that the POS we are seeing around the world is incredibly strong region for region. We saw a bit of a decline in this quarter due to the timing shift between the two merchandising dates. But as we come into the fourth quarter whether it is our preschool Star Wars initiative or our product in support of Rogue One, we are seeing great takeaway.

We also see the movie is having wonderful play patterns. Obviously you have seen some of the trailers and you can imagine all the character play and vehicle play that will come and role-play that will come as a result of the movie. And as we have said, we look at the business year on year versus quarter for quarter and that has been consistent throughout the year.

So we are incredibly excited about this movie and then obviously as we get into 2017, we will have the home entertainment window for this movie and then we go into another trilogy movie in 2017. So again, we have very strong expectations for Star Wars and that will happen over time as well.

Okay, great. And then, Deb, some housekeeping just FX impact on the fourth quarter, how should we think about that?

We have about $50 million of FX for the year to date through the end of the third quarter. And we said we could have up to about $25 million more for the rest of the year. And really which is not very different from what we said at the end of the second quarter and really what we are seeing is it is primarily with the UK pound and seeing what happens with the pound over the last few months of the year.

Okay. Thank you very much.

Jaime Katz, Morningstar.

Good morning. Thanks for taking my questions. First, I think you guys mentioned that retail inventories were also up as well as in-house inventories due to new initiatives. And I am curious what you guys might be doing differently this year versus last year to facilitate those brick-and-mortar sales.

If you look a year ago, I think we forget quickly that a year ago in the third quarter we talked a lot about chasing inventory and that we were trying to catch up given the September 4 launch. So this year we have done a better job across the Company particularly in our US business to ensure we had inventories of great initiatives that were selling at a high rate.

So our retail inventories are up but up around the brands that are selling quite well and so we are in support of those. Our percent in-stocks have improved year on year. That is something that care about. We want to make our shelf space as productive as possible in partnership with our retailers.

But equally importantly, we are seeing significant increases in online sales and those online sales are several fold higher than our overall sales. And we are also seeing online sales increases across every one of our categories and this is US data where whether it is boys, girls, preschool or games, we are seeing significant online sales increases. So where we are able to provide our product lines and our brands directly to the consumer via our retail partners online, we are seeing great takeaway and our brands are really resonating. So that also for us is a great bellwether for how consumers are responding to our products and brands.

And then can you guys talk about general trends you are seeing in Europe? I think performance had been pretty lumpy there prior to this year but the last few quarters have done pretty well. Is there any general trend that you guys are seeing that is making that happen or a particular segment/category that is resonating better with those consumers? Thanks.

We are really seeing overall our European business it comes first down to great leadership across companies and our countries. Our team is leading quite well this past quarter. We were in the UK with our Northern European team and down in Spain with Southern European team and Russian teams getting to meet a lot of our management teams. They are doing a fantastic job in executing our brand blueprint to a greater extent.

We are going to market as one voice meaning consumer products licensing hand-in-hand with our toys and games business. We are doing a better job in placing our content around the continent and getting our content played with major broadcasters. We have around the world, so this includes Europe as well as other global players, more than 50 SVOD platforms that are now playing our content. So again, I think that we are just executing the brand blueprint I said in 2015 I thought it was the first year you could really see the brand blueprint come to life. And the European team along with teams around the world are really executing the blueprint for the second year in a highly evident way.

Thank you so much. Nice quarter.

Arpine Kocharyan, UBS.

Thank you very much for taking my question. Brian, you gave some helpful color on POS earlier. You mentioned Q4 so far is up. Could you perhaps give some more color, the actual trajectory, how much it is up because that period will include Star Wars and we know there was a merchandising date shift of course in Q3?

Then in terms of Disney Princess, do you have any color at all on POS in the US like for like for that brand in Q3? In other words I know you didn't make the dolls last year but in terms of industrywide where that brand is trending year-over-year in Q3 and heading into Q4? And then I have an operating margin question.

Sure. So if you divide up Disney Princess into two pieces, the Princess business is up like for like year on year. If you look at the mix, it is a bit more mixed toward lower priced product and that has to do with the fact that there are some lower price SKUs from prior product inventory that are still selling through in the third quarter. So overall we are seeing growth in our business and we are seeing like for like stronger takeaway for our products but we are also seeing stronger takeaway into the third-quarter for lower-priced products that will be eliminated over the next quarter or two.

We are seeing great takeaway in fashion dolls offering all 11 fashion dolls. We are seeing great early takeaway from Elana of Avalor so again overall Princess and Frozen performing well. And Frozen, what is great is that the brand is performing for us at quite a strong level and Frozen has even more of an international footprint than the Princess business on a percentage basis so more countries around the world are really focusing in on Frozen with great results globally and you see that indicated in some of our POS data. Frozen is tending to be slightly more internationally oriented on percentage terms.

Obviously we are benefiting from a great campaign that has begun this fall called Dream Big Princess in partnership with the Disney Company. And of course, we are very much looking forward to all of the new entertainment coming next year, the broadcast debut of Frozen, the Frozen holiday special first quarter seeing the Beauty and the Beast live-action movie, Elana of Avalor on television and of course, Moana coming in the next few weeks.

Thank you. Very helpful. Then I had a quick follow-up on full-year guidance for operating margins; it seems like in line to slightly up. Could you just talk about what that implies for Q4? It seems like that would imply Q4 would be a little bit softer than a year to date.

Well, we really do think in terms of the full year when we think about our business. We mentioned some of the things that we expected would be impacting us in the fourth quarter. Our results are running better than we had planned, certainly. We planned our business a few years back, so we have some compensation expense that is in addition, and we continue investing for the future of the business.

And that impacts the year pretty ratably as we spend for things like our new Backflip game launches and our Magic: The Gathering Digital Next platform, our online platform for Magic as well. So we will see some things continuing into the fourth quarter from what we have seen to date.

Thank you very much.

Mike Swartz, SunTrust.

Good morning, everyone. Just wanted to touch on the boys' business and parse through some of the moving parts of the different properties there, Brian. I think in the past you said Jurassic Park was about a $100 million headwind to this year. And I think in a past conference call you also said Transformers was kind of down or off 20%; if you could you clarify that.

And then maybe just give us a view of what some of the others is doing. Star Wars is up, but Marvel, how should we think about that this year?

So if you look at the boys' business in the quarter, the biggest decline both for boys and for our company in the quarter was Jurassic. That is the impact that it had. In the quarter, Marvel is up a bit in the boys' business. Our action figure business is performing at quite a high level. It was a strong contributor to the quarter. We had great partnership on a superhero spectacular retail program with Disney and with Marvel. Our Marvel Legends business is performing quite well. Spiderman is also performing quite strongly which is a great lead into next year's movie. And so that is what we are seeing.

We also have got a lot of fan oriented product. It is one of the brands that is responding the most to our fan orientation and fanning the flames of our fans and providing product to them that they really like and offering that online. And you will see some products for fans around Dr. Strange.

As you go forward, Nerf is growing dramatically for both the quarter as well as year to date. Star Wars as I said, year to date is up significantly, down in the quarter. And Transformers is up. As I noted, Transformers is up pretty substantially in the quarter and it has to do with the fact that we continue to improve the blueprint and add elements to the blueprint. This quarter with the Machinima content running the Combiner Wars and that product performing at quite a strong level, so Transformers business is doing well.

We also add to that the Backflip Studios Transformers Earth Wars which is all around Combiner Wars. So again, executing that blueprint. We even had fan created product in the quarter which is a Combiner called Victorion created by fans. We are allowing fans to curate along with the content that we are streaming so three types of content. And it is a strong lead in to our 2017 plans for Transformers.

In addition, I forgot to mention but in Marvel we have very strong plans leading to next year in 2017 obviously with Guardians of the Galaxy, with a Spiderman movie and a Thor movie.

So we are in a good position on the Marvel boys business overall. And then of course a new initiative that is working particularly well in early days internationally is Yo-Kai Watch. We just started to launch it in international markets and we are seeing some great takeaway there.

So overall, there is kind of our boy's lineup and as I said on Star Wars to repeat, we do expect that Star Wars could equal Star Wars levels of 2015 across the Company.

All right, that is very helpful and then just maybe continue on the Transformers commentary and just kind of the blueprint that you have been laying, I mean the old rule of thumb was in the year after a movie that property would fall about 50%. I mean is there a new kind of way to look at that going forward with the next iteration in Transformers coming next year?

I think we are really entering a new era and it is really an objective that we have across the Company as we expand our blueprint and go to the next iteration of our blueprint for our Company. You are going to see in 2017 two Hasbro films, certainly Transformers. You are also going to see a My Little Pony animated feature in the fall. The opportunity in Transformers is to take the storytelling into movies for multiple years and you will see that in 2017, 2018 and 2019 with different kinds of stories being told. So not every movie will be the same but every movie continues to add to the character and story of the property.

And when we first started our objective was always to build a brand enterprise value through the blueprint and so this is the next logical step. I took a step back as we came into the third-quarter call just to give a perspective on our franchise brands and brands like Transformers. So I looked at franchise brands as we were sitting here at the end of the third-quarter 2013 and take it today, year-to-date versus year-to-date 2013 versus 2016, our franchise brands are up 33%. And that is the view we take to our business is that longer view of building brands over time, adding elements to our blueprint, adding capabilities and taking our brands over time to the next level.

So that is indicative of the way that we think about franchise brands. So Transformers steps up, My Little Pony steps up for next year and then in the next couple of years you will also see the Littlest Pet Shop stepping up to more content in a number of ways.

Okay, great. And then shifting over, Deb, just in terms of amortization for the year, the outlook there for both I guess the intangible piece as well as the production cost piece?

Well, the intangible is consistent with what we put out at the beginning of the year. As far as program production amortization, we do expect -- and it is purely because of timing, we haven't delivered as many programs as we had planned to this year. So I think we had been saying it would be about 1% of revenue, we now expect it will be a bit less than that for the full year. However, we still expect to spend on a cash spend basis about $60 million full year.

Okay, that is great. Thank you.

Greg Badishkanian, Citigroup.

Great. Thank you. Just as we think about 2017 entertainment, there seems to be a lot of entertainment next year. How are you thinking about the overall, that overall expanding category sales as it has done in the past versus cannibalizing sales because it may be some of the entertainment gets lost? Also just how you feel about your entertainment in 2017 and then putting that into perspective, what you have in 2016?

So overall in 2017, we are incredibly excited about the lineup. I think over time what we have seen is that entertainment is stretching the retail calendar both online and at brick-and-mortar globally with more entertainment initiatives occurring but spreading the calendar to be now from the first quarter through the fourth quarter versus the older thinking of just looking at summer movies. And that is quite good for our business and good for the way we think about executing on blueprint.

In the first quarter you know, we'll have new initiatives coming from Disney and Beauty and The Beast live-action, there is a Wolverine movie coming that helps to continue to support the X-Men business. And then Guardians of the Galaxy, Transformers movie and both coming in the summer but spaced. A Spiderman movie coming which is very exciting, that is a great brand for us and we are looking forward to really executing that across multiple platforms.

My Little Pony comes in the fall in October and then you have Thor and of course then you have Episode Eight, Star Wars Episode Eight in December. So a great spread of entertainment and then combine that with our television efforts across multiple platforms and in the Walt Disney Company with its television efforts across Spiderman, Avengers, and Guardians, we have a very robust lineup for 2017 that we are very excited about both from Hasbro having two animated films and multiple TV series as well as our partners. And I think we are well-positioned coming into 2017.

Great, thank you.

Eric Handler, MKM Partners.

Thanks for taking my question. Deb, a follow-up question for you on the operating margin outlook for the year and some statements you made about compensation expense being higher, the Magic: The Gathering digital platform. So as we look at some of the additional line items that make up the expense lines, are we going to need to see then a big increase as a percentage of revenue, the SG&A line relative to where it was last year in the fourth quarter, same thing with gross margin or maybe product development?

Well, again, you know we have talked earlier in the year and really haven't changed our thought process around product development or gross margin as far as being able to sustain the levels that we experienced. Again on the full-year. So we do try to stress, we think about the business on a full-year basis.

Royalties we did say we expected to be up a bit given the performance of our partner brands, the strong performance over our expectations. So we will see that line item go up and we continue to just invest in product development to the levels that we had talked about earlier in the year.

As far as advertising, we do have consistent advertising expectations for the full year. So I think it is just a matter of the additional expense that we see kind of over and above what you would normally see in the quarter and that is what we tried to explain this quarter as well.

Okay, thank you.

Tim Conder, Wells Fargo.

Thank you. Brian or Deb or whoever wants to take this, just want to get a little bit more color on the strength you are seeing in Brazil. And then China also, a little bit more color there.

Then if we take that, can you give us any color how China in particular your mix of brick and mortar versus online? And then after we hit those geographic areas, the other part would go back to inventories. Where do you see turns stabilizing here or -- and when? And as we see the online portion grow, how is that going to factor in on a go-forward basis there?

If you look at emerging markets business overall, it grew 16% in the quarter. We saw very strong growth in Russia, we saw strong growth in Brazil although the market was a little more flattish in Brazil. And we saw strong growth in China. The impact in Asia-Pacific POS as I noted was really an Australian issue with a retailer that we are working through.

But our market share in Australia has also grown despite that short-term issue.

In China, we are seeing very strong double-digit growth. The teams are really executing around the blueprint. And if you go to stores in China what you see is our brands coming to life between consumer products as well as our toys and games, our entertainment, on the air there as well obviously our movies are incredibly important. And Transformers as you know is one of the most well-known brands in China and beloved and it is an area for us of significant opportunity for long-term growth between that and several of our other brands that we have launched across franchise and partner brands.

In Brazil, we have seen great growth. In fact in Brazil, we enjoy the position of number one doll line right now with Baby Alive. It is a category where the baby doll business particularly is particularly strong. We have seen overall global growth for Baby Alive but Brazil is particularly a baby doll market.

And if you think about turns of inventory, clearly underlying turns of inventory in our business is growing. When you add new initiatives you need to provide inventory to satisfy the demand for those new initiatives and not cannibalize those to the rest of your business because these are additive opportunities and we are seeing great acceleration in POS for those new initiatives be it Disney Princess or Frozen.

And then in the next several weeks, we will see Trolls movie hit theaters around the world and of course we are lining up for the Trolls business across a multitude of categories and segments and very excited about that.

Yo-Kai Watch as I noted was some additional inventory that is already paying dividends in the takeaway particularly in some international markets where we have great TV placement is doing quite well.

So our turns of inventory and our management of inventory continues to improve. We continue to get leverage in our business over time and make improvements in operating margins over time as a Company and that is our objective over time is to grow operating profit faster than revenues and we have done that in the quarter and we intend to continue to do that.

Okay. And then any comments on your expectations for Furby and how that is going to ramp?

Furby is in the early days but early days are good. It is a very sophisticated product in that it provides content through Bluetooth, it is a closed environment so we have taken care of all of the security and safety measures that are noted. It is not a two-way device, it is a one-way device. It brings out new content to the fan and to the user and early days are quite good, takeaway is good and both retail and online sales are strong.

Okay, thank you.

Trevor Young, Jefferies.

Thanks for taking my question. I believe you said partner brand should approach 30% of revenue versus about 28% last year. Even with your revised royalty guidance it would imply that 4Q royalty would be down year-over-year despite potentially supporting more movie franchises in 4Q. Could you maybe help me understand some of the moving pieces there?

It is really about product mix. So depending on how you model our franchise and our own brand versus partner brands, that is really all about the mix.

If you look in the quarter, royalties are running 8% up against 7.7% last year. All Deb had noted was that we could be 8.1 or a bit for the full-year up against the year ago number of 8.5. So again, I think we are in that range, we are ranging it for you and again it does have to do a lot to do with product mix and certainly we have seen growth of our business and other areas but trying to give you a broad sense of what we think.

Okay, great. Just kind of following on that then as partner brands increase as a percentage of revenue, should we see continued slight benefit to gross margin? I know you said sticking with your guidance of roughly in line with last year?

So again, we are not suggesting that partner brands are going to continue to grow over time beyond the range that they are in. I think they are up a bit versus what we had said earlier. We thought they might come in around 25% over time and over time I would believe around 25%, 27% is about right. They are a bit heavier in this year given the number of new initiatives we are launching for the first time particularly Princess and Frozen. And obviously that has an impact in the early days on operating margin given that we are building our economy of scale and expertise and investment in that area. And that we do believe over time the operating margin for Princess approaches the run rate operating margin for our partner brands.

We have made great progress there. We are ahead of where we thought we would be this time in the year but we still have a long way to go toward the opportunity to grow that business over time.

Great. Thanks so much.

Gerrick Johnson, BMO.

Good morning. You didn't mention performance of Challenger brands. Perhaps a word there. Then related to that, I also understood you may be selling off some of these brands. Can you talk about that strategy? Thank you.

In fact, I think we mentioned that several of our Challenger brands were up in the quarter. Baby Alive was up, Easy Bake was up in the quarter, FurReal Friends was up in the quarter and those brands are all up as well year to date. So our teams are working on our Challenger brands are doing quite a good job in identifying and creating lighthouse identities.

As we normally would say, we don't really comment on M&A overall. We continue to look at our brand portfolio. We own about 1500 brand names and we look at brands that have the greatest global potential enterprise value and over time we may identify brands as we have that are licensed out to other parties for example Tonka is licensed out to another party and we receive royalty income but we are not receiving revenues. So over time the team may look at different strategic optionality for some of those brands.

Okay, thank you. And also Beyblade, I guess that launched in Canada, be here next year. Do you have any early reads on performance of Beyblade there at this point?

It is incredibly early days but we have been in the Beyblade business before and so I wouldn't want to comment not because there is any qualification that I need to provide there, just again, very early days and that is a brand that as you know has great potential for us but it will really impact 2017 and beyond.

Okay, great. Thank you.

At this time I will turn the floor back to Debbie Hancock for closing remarks.

Thank you, Rob, and thank you everyone 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. Our fourth-quarter and year-end earnings release is tentatively scheduled for Monday, February 6, 2017. Thank you.

Thank you. This concludes today's teleconference. Thank you for your participation. You may now disconnect your lines at this time.