Hasbro (HAS) Misses on Q3 Earnings & Revenues; Up Y/Y

Hasbro Inc. (HAS) posted third-quarter 2014 results wherein both earnings and revenues missed the Zacks Consensus Estimate. Adjusted earnings per share of $1.46 missed the Zacks Consensus Estimate of $1.47 by a penny. However, earnings per share were up 11.5% from $1.31 reported in the year-ago quarter driven by higher year-over-year revenues and lower share count.

Adjusted earnings excluded a pre-tax charge related to the restructuring of the company’s investment in the Hub Network joint venture.

Hasbro, Inc - Earnings Surprise | FindTheBest

Hasbro’s net revenue of $1.469 billion increased 7% year over year driven by continued growth in the Girls Category, significant growth in the Boys segment and a 17% increase in international sales. However, it missed the Zacks Consensus Estimate of $1.472 million by 0.2%, which we believe was due to the underperformance of the Preschool segment.

Behind the Headline Numbers

Hasbro’s product segments comprise Games, Girls, Preschool and Boys categories. Games category revenues increased 2% to $395.2 million mainly due to growth in revenues in the Magic: The Gathering, Monopoly, Simon Swipe and Operation. These were partly offset by declines in several brands, including Telepods featuring the Angry Birds Star Wars II game, Jenga, Bop-It and Duelmasters.

The Girls category grew 5% year over year to $407.7 million, thanks to continued strong growth from My Little Pony, My Little Pony Equestria Girls, Littlest Pet Shop, Furreal Friends and Nerf Rebelle and the introduction of Play-Doh Dohvinci.

Preschool category revenues dipped 7% to $188.5 million due to lower revenues from Playskool and Sesame Street products. These declines were offset by higher revenues in Play-Doh and Transformers Rescue Bots.

After declining throughout 2013, the Boys category posted revenue growth for the third consecutive quarter. Revenues were $478.5 million, up 22% year over year driven by growth in Transformers, Nerf, Star Wars and Marvel products.

Segment-wise, net revenue from the U.S. and Canada segments increased 4% year over year to $764.3 million owing to growth in the Games and Boys categories in the region, partially offset by lower revenues from the Girls and Preschool categories. The segment’s operating profit also increased 16% to $169.9 million.

International segment revenues grew 11% to $649.3 million primarily due to double-digit growth in Latin America and Asia Pacific, Europe as well as in the Boys, Girls and Preschool categories. The segment’s operating profit was $116.5 million, up 10%.

Entertainment and licensing segment revenues increased 10% year over year to $53.4 million, driven by growth in lifestyle licensing. The segment’s operating profit, however, decreased substantially on a year-over-year basis to $0.5 million.

Hasbro’s cost of sales ratio declined 50 basis points (bps) to 41%. Its selling, distribution and administration expenses ratio declined 30 bps, while royalty expenses ratio decreased 410 bps. Adjusted operating profit was up 9% year over year owing to increase in revenues.

Hub Network Joint Venture

On Sep 25, Hasbro and Discovery Communications, Inc. (DISCA) declared that the Hub Network would become Discovery Family Channel from Oct 13, 2014. The network will broaden its programming focus to serve families in primetime and continue to showcase Hasbro Studios award-winning children’s content in daytime.

Our Take

Though the company missed the Zacks Consensus Estimate on earnings and revenues, both were up considerably on a year-over-year basis. The Girls segment continues to drive growth. Moreover, the Boys segment maintained the trend of year-over-year growth. The favorable numbers can be attributed to Hasbro’s consistent efforts to establish its presence worldwide through strategic partnerships and rapid growth in emerging markets. However, we believe consumer spending uncertainty still lingers amid sluggish economic growth in the U.S. with customers reducing their non-essential purchases.

Hasbro carries a Zacks Rank #4 (Sell). Better-ranked stocks in the same industry include Glu Mobile, Inc. (GLUU) and JAKKS Pacific, Inc. (JAKK). Both these have a Zack Rank #2 (Buy).

Read the Full Research Report on JAKK
Read the Full Research Report on HAS
Read the Full Research Report on DISCA
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