Ghost Global (Hasbro | Goldman Sachs | Volvo)

In Ghost Global this week, we bring you the latest news on Hasbro, Goldman Sachs and Volvo.

If you’ve been in the markets in 2022, you’ll know that it’s hardly been a game. It’s been more painful than a family fight after a long night of playing Monopoly, which brings us neatly to Hasbro as our first company in this week’s global update.

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It’s a kind of Magic

In the quarter ended September, Hasbro managed to miss expectations that weren’t terribly demanding. The pandemic is but a distant memory now, as are the toy sales to parents who were desperate to entertain the kids during lockdown.

Revenue is down 15% to $1.68 billion and adjusted operating profit fell by 31% to $271 million. Not such a monopoly, after all.

The problem is consumer price sensitivity in an inflationary environment where people are trying to afford fuel, nevermind games. This drives increased promotions and puts pressure on gross margins.

As highlighted in Magic Markets Premium some months ago (and not because of the similar name), the best business in the group is Magic: The Gathering. This collectable card game has been popular for three decades and continues to grow its loyal fan base, having become Hasbro’s first $1 billion brand. Hasbro’s revenue growth in the upcoming quarter is expected to be relatively flat, with Magic contributing one of the few positive stories.

The release of blockbuster movies is also important, as Hasbro manufactures toys under licence from studios. Marvel Studios’ Black Panther: Wakanda Forever in November should help, along with six more blockbuster films in 2023.

Finally, Hasbro intends to focus on high-margin pre-school brands including Peppa Pig and Play-doh.

The share price has lost 35% this year. It will be interesting to see how the company performs over the all-important festive season.

Goldman Sachs: a painful point in the cycle

There are several major banks in the US. Even in such illustrious Wall Street company, Goldman Sachs stands out as the most iconic investment bank of all.

At this stage in the cycle, that’s not necessarily a good thing.

For investment bankers to make the kind of bonuses that keep Porsche’s income statement ticking over, there needs to be capital markets activity. Bankers need IPOs and mergers in order to earn juicy advisory fees. After a red hot period during the pandemic as vast liquidity hit the market, there has been a harsh return to reality.

Third quarter revenue is down 12%, though at $11.98 billion there is still no shortage of cash to help pay for impressive office buildings. Revenue is 1% higher than in the second quarter, so there’s a modest sequential uptick.

The Investment Banking segment took the most pain, with net revenues down 57% to $1.58 billion. This is purely because liquidity has dried up and markets have been in the doldrums, so those who didn’t list or raise capital during the pandemic aren’t about to rush into that bloodbath. The situation is worsening this year, with revenue down 26% vs. the second quarter.

The much larger Global Markets segment grew by 11% to $6.2 billion, benefitting from a higher interest rate environment and the knock-on effect for certain products. As a partial offset, there was lower revenue in cash products, equity financing and derivatives. Revenue was 4% lower than in the second quarter.

The Asset Management segment couldn’t escape the broader pressures of the market, with revenue down a nasty 20% to $1.82 billion. It’s almost impossible to grow asset management earnings in a falling market, as net inflows would have to be gigantic to counter the effect of a smaller base on which to earn fees. The good news is that revenue is 68% higher vs. the preceding quarter, so there are signs of improvement.

The Consumer and Wealth Management segment grew revenue by 18% to $2.38 billion, driven by higher deposit spreads and credit card balances. In this part of the bank, higher interest rates are helpful. As balances and average rates have grown, revenue is also 9% higher than in the second quarter.

The share price is down 14% this year. That’s a decent result, as JPMorgan has lost over 22% this year.

For truck sakes

We end off this week with Volvo, a group that manufactures far more than just soccer mom cars.

With an increase in net sales of 35%, it’s interesting to note that Volvo sells more trucks than passenger vehicles. The net order intake for trucks increased by 27% to 64,700 vehicles, with the need to replace ageing trucks as a major driver of demand. Fully electric trucks increased by 307%, albeit off a small base.

In passenger vehicles, deliveries rose by 21% to 53,300 vehicles.

With production and delivery records tumbling for Volvo this quarter, the ongoing challenges in supply chain remain a massive irritation. As lovely as the growth in sales looks, the impact gets blunted by a 34% increase in operating expenses. Operating margins have dropped from 11% to 10.3%.

Impressively, more efficient working capital means that return on capital employed has improved from 25.6% to 27.4%. That’s good going in this environment.

Volvo hasn’t been immune to other geopolitical issues, with construction equipment deliveries down 7% because of market declines in China. The war in Ukraine resulted in substantial impairments of assets relating to Russia.

There’s a significant own goal as well, harking back to Volvo violating EU competition rules and needing to pay a lofty fine. That opened the floodgates for private damages claims from customers and other third parties, with Volvo unable to estimate the potential liability at this stage.

Volvo’s share price is down 16% this year, a far better outcome than many other manufacturers. For example, Ford is down more than 42%!

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