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Investing.com -- S&P Global Ratings has revised the outlook for global toy and games company Hasbro Inc (NASDAQ:HAS). to stable from negative, following the company’s improved profitability and credit metrics in 2024. The ’BBB’ issuer credit rating on the company has been affirmed, along with the ’BBB’ issue-level rating on the company’s senior unsecured notes and ’A-2’ short-term rating on its commercial paper.
Hasbro’s improved performance was driven by increased cash flows and profitability as a result of right-sizing its cost base and improving inventory levels, supply procurement, logistics, and manufacturing. The company’s leverage is expected to stay below the 3x downgrade threshold through 2026, supported by a financial policy that favors debt repayment and expected growth in its digital and gaming portfolio.
Despite a revenue decline of 17% in 2024, due to the exit of unprofitable business lines in its consumer products segment and the divestiture of eONE in 2023, Hasbro’s outlook was revised to stable. This decline was partially offset by stronger-than-expected growth of 4% in its Wizards of the Coast & Digital Gaming segment, driven by strong demand in MAGIC: The Gathering.
In 2025, Hasbro is expected to see solid mid-single-digit percent revenue growth in its Wizards of the Coast & Digital Gaming segment, as it benefits from Beyond the Universe set releases and continued good demand. Low-single-digit percent declines are expected in its consumer products segment due to a lighter entertainment slate for Star Wars and category declines in NERF. However, its other core toy categories are expected to maintain or increase share.
The company’s first AAA self-published video game, EXODUS, is scheduled for release in 2026, which is expected to contribute to growth. As a result, Hasbro is projected to have flat consolidated revenue in 2025 and mid- to high-single-digit percent growth in 2026.
Hasbro’s long-term strategy to increase its mix of revenue towards digital and gaming could result in less seasonality and an avenue for growth. The company’s potential revenue opportunity continues to incorporate more than just traditional toys, with increasing opportunities for revenue growth in digital and with an older demographic of toy buyers.
The U.S. toy industry’s growth is expected to be flat for 2025 due to cost fatigue, despite a heavier entertainment lineup. However, the toy industry is believed to be somewhat resilient to economic slowdowns, with consumers reliably purchasing toys for children even in an uncertain economic environment with persistent inflation.
Hasbro ended 2024 with S&P Global Ratings-adjusted net leverage of about 2.7x, including repaying $83 million in debt. The company is expected to continue to use excess cash flow to repay debt and work towards its gross leverage policy target of 2x-2.5x by the end of 2026.
Hasbro, which sourced about 50% of its toy production from China in 2024, aims to reduce volumes to under 40% over the next two years. This exposure is somewhat offset by Hasbro’s global manufacturing footprint, but the movement of production and procurement of materials in response to potential additional material tariffs could take time. Additional material tariffs could pose a significant burden on margins and may lead to weaker credit metrics.
As a toy manufacturer, Hasbro is exposed to the volatility in commodity prices for raw material inputs and the risk of being unable to pass these fully through to retailers. The toy business is also highly seasonal, which can magnify potential sales and inventory missteps, and the potential for costly supply-chain disruptions and product recalls that can reduce profitability.
The stable outlook reflects the expectation that Hasbro has likely stabilized most of its product set across segments, which will likely lead to modest revenue growth in 2026.
The rating could be lowered if the company sustained S&P Global Ratings-adjusted debt to EBITDA above 3x and free cash flow to debt below 15%. This would likely occur as a result of some combination of additional material tariffs that cannot be passed on to retailers and consumers, weak consumer demand for toys, an operating misstep that negatively affects sales or margin, loss in market share across segments, and/or leveraging mergers and acquisitions (M&A).
A higher rating is unlikely given Hasbro’s financial policy to target gross debt to EBITDA of 2x-2.5x. However, the rating could be raised one notch if net leverage would stay below 2x, which would require a publicly articulated shift in financial policy that has a plausible strategic rationale.
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