Hasbro, Mattel expand as logistics cost inflation spoils playtime

Global toymakers Hasbro Inc. and Mattel Inc. reported revenue growth in the fourth quarter of 2020 but incurred additional costs to deliver that growth. Hasbro reported a 3.6% expansion in revenue on a pro forma basis, including a 27% surge in board games. The company's U.S. operations expanded 4% while its international business declined. Mattel, meanwhile, reported a 10.3% jump in revenues with North America region sales rising 13% higher on the back of sales of the Barbie and Hot Wheels brands, which grew by 19% and 13%, respectively.

Both companies did better than expected, with Hasbro's expansion beating analysts' expectations by 2.1 percentage points, according to S&P Capital IQ figures, while Mattel's were 2.6 percentage points better.

Panjiva's data for U.S. seaborne imports linked to Hasbro increased 11.7% year over year in the fourth quarter of 2020, while those associated with Mattel jumped 23.4% higher. For comparison, total imports increased 14.5%, including smaller brand owners.

Mattel CEO Ynon Kreiz said the company will "deliver strong sales growth in the first half [of 2021] compared to last year, but it will probably be more challenging in terms of comparison in the second half." Clearly, the timing of the pandemic's emergence a year earlier and the potential for a return of service economy spending later in 2021 are factors for the comparative analysis.

In January, normally the off-peak season, total imports increased by 12.5% while Hasbro's jumped 31.7% higher and Mattel's increased by 15.2%. The surge in total imports may reflect, in part, the clearing of backlogged shipments that should have arrived in late November 2020 or early December 2020 but were held up by port congestion. That factor, as flagged in Panjiva's Feb. 9 research, has yet to be cleared.

Delivering that growth has put pressure on both companies' supply chains, with Kreiz saying that Mattel's "supply chain performed very well in fulfilling more of the extraordinary growth in consumer demand than expected." Yet, the company faced inflation "in both materials driven by resin and in logistics driven by ocean freight, and it came on pretty quickly," which when added to higher labor costs meant that in aggregate "product cost inflation had a negative impact of 40 basis points" in the fourth quarter of 2020, according to CFO Anthony DiSilvestro.

Similarly, Hasbro CFO Deborah Thomas said the company has "been able to meet demand despite challenges in shipping and port congestion," with the result that Hasbro has sustained "higher costs, in part resulting from the pandemic, namely in freight and bad debt." One strategy has been to pursue an "evolving geographic manufacturing supplier base were essential to meeting demand," according to CEO Brian Goldner.

Over the longer term, though, Hasbro's U.S. imports have become more reliant on mainland China, which accounted for 80.3% of shipments in the second half of 2020 compared to 76.7% in the second half of 2019 and 73.6% in the second half of 2016. That has come as the risk of Trump administration tariffs declined and has come at the expense of lower shipments from Vietnam and Europe.

Christopher Rogers is a senior researcher at Panjiva, which is a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence. Links are current at the time of publication. S&P Global Market Intelligence is not responsible if those links are unavailable later.