Investing.com -- On Wednesday, Fitch Ratings updated Hasbro (NASDAQ: HAS ), Inc.'s outlook to stable from negative and reaffirmed the company's long-term issuer default rating (IDR) and senior unsecured ratings at 'BBB-'. The short-term IDR remains at 'F3'.

The revision to a stable outlook is a result of Hasbro's significant EBITDA recovery and debt reduction in 2024, which saw leverage decrease to 3.4x. Fitch anticipates that revenues may stabilize in 2025, with low single-digit growth expected in the Wizards of the Coast segment and modest declines in Consumer Products, in part due to foreign currency headwinds. Hasbro's ongoing focus on cost improvements and debt reduction could further lower leverage to around 3.0x in 2025.

Fitch also noted Hasbro's strong profitability and its portfolio of highly visible brands, which help to counterbalance the seasonality and potential volatility of profitability inherent in the toy industry.

Hasbro's leverage improved from 5.0x in 2023 to 3.4x in 2024, driven by a significant EBITDA recovery and about $80 million in debt reduction. The company plans to continue reducing debt, which, along with EBITDA growth, will lower leverage to around 3.0x in 2025.

Fitch expects Hasbro's sales to stabilize at about $4.1 billion in 2025, similar to 2024 levels. This stabilization is supported by low single-digit growth in the Wizards of the Coast segment and modest declines in Consumer Products, largely due to foreign exchange headwinds from a strengthening dollar.

The Wizards of the Coast segment, which represented almost 40% of Hasbro's sales in 2024, is expected to drive Hasbro's sales and profitability over the next few years. The segment's operating margins are stronger than Consumer Products, which could support margin expansion as the segment continues to grow its contribution to overall sales.

Hasbro's Fitch-calculated EBITDA recovered to $1 billion in 2024, a significant improvement from $693 million in 2023. The rebound was driven by lapping one-time costs incurred in 2023, strong performance in the high-margin Wizards of the Coast segment, and cost savings from the company's Operational Excellence program.

Hasbro is one of the largest companies in the global toy industry, with sales in the low $4 billion range expected in 2025. The company has a strong IP portfolio of owned brands such as Play-Doh, Monopoly, Magic: The Gathering and Dungeons & Dragons, and licensed brands such as Marvel.

Fitch believes toy manufacturer sale patterns have reverted to pre-pandemic trends, with roughly one-third of sales in the first half of the year and two-thirds in the last half, highlighting the seasonal nature of toys and the importance of a strong holiday sales season.

Hasbro has ample liquidity, with $695 million of cash on hand at Dec. 31, 2024, and it had full availability on its $1.25 billion unsecured revolving credit facility. Fitch expects the company's free cash flow (calculated after the payment of dividends) to be in the $100 million-$150 million range in 2025 and 2026.

Hasbro's debt consists of around $3.4 billion of unsecured notes, which mature between 2026 and 2044. The company's next maturity is its $675 million in unsecured notes due November 2026.

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