Hasbro Misses Top and Bottom Lines

Zacks

Hasbro Inc. (HAS) has reported first quarter 2012 adjusted earnings per share of 4 cents, which lagged the Zacks Consensus Estimate of 7 cents. The earnings were also below the year-ago level of 12 cents. On a GAAP basis, Hasbro reported a 2 cents loss in the quarter.

Hasbro’s net revenue of $648.9 million slid 3.0% from the year-ago quarter and also missed the Zacks Consensus Estimate of $670.0 million. Foreign exchange had an unfavorable impact of $8.5 million. Revenue could not utilize one extra week of operation in the first quarter of 2012 compared to the year-earlier quarter.

After an outperformance for quite some time, the Transformers and Beyblade brands were flat in the quarter. Entertainment backed brands like Marvel, Star Wars, Kre-O were the factors to be thanked for the contribution to revenue.

Hasbro continued to return value to investors in the form of a share repurchase and dividend distribution.

Performance Highlights

Hasbro experienced worldwide net revenue growth in two of its four major product categories, namely Boys and preschool which inched up a respective 4% and 2% to $302.8 and $69.9 million, on an annualized basis. On the other hand, Girls and Games categories fell 18% to $93.2 million and 9% to $181.9 million, respectively.

Geographically, net revenue from the U.S. and Canada segment declined 16% year over year to $329.0 million, while its operating profit registered a steeper decline of 65% to $14.4 million. The International segment reported net revenue of $289.7 million, up 14% year over year. The segment’s operating loss was $5.1 million versus $1.7 million loss recorded in the year-ago quarter.

The Entertainment and Licensing segment experienced a 19% year-over-year jump in revenue to $29.3 million. But the segment’s operating profit showed a greater increment of 42% to reach $7.7 million.

We noticed a 21.3% rise in Hasbro’s royalty expenses from the prior-year period to $21.3 million. Product development expenses totaled $44.9 million, down 2.0% year over year. Advertising expenses decreased 2.3% from the prior-year quarter to $65.0 million. Selling, distribution and administration expenses also increased 7.5% to $199.9 million.

Financials

At quarter end, total assets were $3.88 billion compared with $3.94 billion at the end of the year-earlier quarter. Hasbro’s long-term debt was $1.40 billion, almost flat year over year.

Hasbro repurchased a total of 139,656 shares during the quarter at a total cost of $5.0 million. At quarter-end, $222.3 million remained available in the current share repurchase authorization.

Outlook

Management expects year-over-year growth in revenue and earnings per share for 2012 excluding the impact of foreign currency translation.

Our Take

Hasbro’s strong product line-up slated for the second half of the year, strategic tie-ups, and its growing presence in emerging geographical regions bode well for future growth.

However, the Consensus miss in the first quarter concern us a bit. Management commented that this underperformance was expected as it planned for a back-end loaded year.

Hasbro currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are maintaining our long-term Neutral recommendation on the stock. As a point of reference, one of Hasbro’s major peers Mattel Inc. (MAT) missed the Zacks Consensus Estimate in its first quarter 2012 earnings per share and revenue.

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