Hasbro (HAS) Down 0.1% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Hasbro (HAS). Shares have lost about 0.1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Hasbro due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Hasbro's Q3 Earnings & Revenues Lag Estimates

Hasbro reported dismal third-quarter 2018 results, wherein both earnings and revenues missed the Zacks Consensus Estimate.

Adjusted earnings of $1.93 per share lagged the consensus mark of $2.24. The bottom line also declined 7.7% from the prior-year quarter’s number.

Net revenues totaled $1,569.7 million, which missed the consensus estimate of $1,714 million and also decreased 12.4% from the prior-year quarter. The decline in revenues can be primarily attributed to the liquidation of Toys “R” Us in the United States, Europe and the Asia Pacific. International revenues, mostly in Europe, were impacted by change in consumer shopping behaviors.

Brand Portfolio Performances

The Franchise Brand posted revenues of $847.7 million, down 5% year over year. Notably, increase in sales at MONOPOLY, MAGIC: THE GATHERING, PLAY-DOH and BABY ALIVE was overshadowed by a dismal performance at other Franchise Brands, including NERF, MY LITTLE PONY and TRANSFORMERS. In the United States and Canada, Franchise Brand revenues increased marginally. The Entertainment and Licensing segment also witnessed an increase in Franchise Brand revenues. However, the international segment declined in the quarter.

Partner Brand revenues slumped 37% to $305.8 million due to a decline at all other Partner Brands except MARVEL and BEYBLADE. Apart from the United States and Canada, Partner Brand revenues declined at the International segment.

The Hasbro Gaming revenues came in at $280.8 million, up 0.2% on a year-over-year basis. Robust performances of DUNGEONS and DRAGONS, JENGA, DUEL MASTER and DON’T STEP IN IT were overshadowed by the weakness at PIE FACE and other properties. Hasbro Gaming revenues increased in both the United States and Canada segment but decreased in the International, and the Entertainment and Licensing segments. Notably, the company’s total gaming category in the quarter under review was up 5% to $447.8 million.

Emerging Brands revenues increased 2% year over year to $135.3 million.

Segmental Performance

Regionally, net revenues from the United States and Canada segment decreased 7% to $924.2 million. The segmental performance was primarily impacted by the Toys “R” Us liquidation. However, operating profit margin expanded 260 bps year over year owing to favorable product mix and lower administrative and royalty expenses.

International segment revenues summed $560.7 million, down 24% year over year. The decline was primarily due to Toys “R” Us U.K. liquidation and the company’s efforts to clear unsold inventory in Europe. The segment recorded operating profit of $66.3 million compared with $132 million in the third quarter of 2017.

However, the Entertainment and Licensing segment revenues grew 45% year over year to $84.8 million, backed by multi-year digital streaming agreement for Hasbro television programming as well as revenues from 2017 My Little Pony: The Movie. Also, the segment's operating profit margin expanded to 39.7% from 28.9% in the prior-year quarter.

Operating Highlights

Hasbro's cost of sales, as a percentage of net revenues, increased 100 bps to 41.8%. Meanwhile, selling, distribution and administration expenses, as a percentage of net revenues, were 17.4% flat year over year. Overall operating margin contracted 10 bps to 20% year over year in the quarter under review.

Balance Sheet

Cash and cash equivalents as of Sep 30, 2018, amounted to $907.1 million, down from $1.24 billion as of Oct 1, 2017. At the end of the reported quarter, inventories totaled $610.9 million compared with $629.1 million in the prior-year quarter.

Long-term debt increased to nearly $1,694.7 million as of Sep 30, 2018, from $1,693.3 million as of Oct 1, 2017.

Hasbro’s board of directors declared a quarterly cash dividend of 63 cents per common share. The dividend will be payable Nov 15, 2018, to its shareholders of record at the close of business as of Nov 1, 2018.

In the third quarter, the company repurchased 801,466 shares for $79.5 million. At the end of the reported quarter, $485.7 million was available under the current share repurchase authorization.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.5% due to these changes.

VGM Scores

Currently, Hasbro has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Hasbro has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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