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Hollywood Bombs Don’t Help Hasbro but Potential Hits Are Coming Next Year

Aaron Pressman
The Exchange
The Avengers movie

Hasbro (HAS) surprised Wall Street Monday with weaker than expected sales and profits.

The culprit? Tumbling sales from movie tie-in toys. Hollywood is having a terrible summer this year, as flop after flop hits theaters. This weekend’s bombs included "Turbo", the cartoon tale of a high-speed snail. Another toy-industry favorite, "Pacific Rim", fell flat the week before.

Last year, two mega-hits, "The Amazing Spiderman" and "The Avengers", helped sell tons of toys for Hasbro.

Investors not concerned

But despite the quarter's weak results, Hasbro investors didn’t care – the stock dropped in pre-market trading but quickly recovered, gaining 2% to above $46 in regular trading.

That’s because Hasbro CEO Brian Goldner had great news on the future Hollywood front, extending his company’s licensing deal with Disney’s (DIS) Marvel and "Star Wars" franchises through 2020. At this time next year, Hasbro could also be reporting huge increases in sales of "Spiderman" and "Transformers" toys; both movies have sequels coming out in 2014, notes Needham & Co. analyst Sean McGowan. And a new "Star Wars" television show debuts in 2014, preceding the seventh movie installment in 2015.

“I'm sure it will look like Hollywood is being berry berry good to Hasbro,” McGowan says, referencing a classic "Saturday Night Live" sketch.

But not yet. Hasbro’s 29 cents of earnings per share was almost 16% below what Wall Street analysts expected, and sales of $766 million missed by 4%, according to FactSet. Goldner blamed the problem on the lack of marque franchise movies this summer versus 2012. Absent the movie-related toy drop, sales would have been up, he told analysts.

Last week it was Mattel that posted lower-than-expected profits and sales, mostly due to sagging sales of Barbie dolls. But it also missed the big sales boost it got in 2012 from Batman-related merchandise due to the hit movie "The Dark Knight Returns", CEO Bryan Stockton said on the analyst call last week.

Turbo movie poster

Mattel is the company that backed "Turbo" and could be stuck with loads of unsold speedy snails figurines. Pre-opening sales of "Turbo" toys “are meeting early expectations,” Stockton said.

[See related: Is Barbie's Allure on the Wane?]

Still, Mattel is poised to benefit later this year from its deals with Disney for other cartoon properties, including the upcoming "Planes" movie, which Stockton called “very toyetic,” and "Frozen", an updated version of the Hans Christian Andersen fairy tale "The Snow Queen."

Hollywood has changed its release schedule for some of its biggest hits, which could be confusing some investors following the toy makers, argues Piper Jaffray analyst Stephanie Wissink.

The preferred times for opening movies “are shifting to spring and fall, not summer, as the movie industry figures out the best timing windows for action and kid-friendly content,” she says.

"Frozen", which opens around Thanksgiving, features a new Disney princess heroine, Anna, voiced by Kristen Bell.

Assuming it does as well as the previous 11 Disney princess movies, Mattel investors could be cheering Hollywood over their turkey dinners.

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