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Hasbro (HAS) Stock Down on Q4 Earnings and Revenues Miss

Zacks Equity Research

Hasbro, Inc. HAS reported dismal fourth-quarter 2018 results, wherein both earnings and revenues missed the Zacks Consensus Estimate for the second successive quarter. Following the quarterly results, shares of the company decreased more than 7% during the pre-market trading session. In the past six months, the stock has lost 7% compared with the industry’s 32.7% decline.

Adjusted earnings of $1.33 per share lagged the Zacks Consensus Estimate of $1.68 and also declined 42.2% from the prior-year quarter’s number.

Net revenues totaled $1,389.2 million, which missed the consensus estimate of $1,524 million. The top line also decreased 13% from the prior-year quarter. The downside can be primarily attributed to the liquidation of Toys “R” Us in the United States, Europe and Asia Pacific. International revenues, mostly in Europe, were impacted by change in consumer shopping behaviors. Revenues in the quarter was impacted by $35.1 million due to foreign exchange headwind.

Brand Performances

The Franchise Brand posted revenues of $729.9 million, down 8% year over year. Notably, increase in sales at MONOPOLY and MAGIC: THE GATHERING was overshadowed by a dismal performance at other Franchise Brands including NERF, MY LITTLE PONY and TRANSFORMERS. However, Franchise Brand revenues improved at the Entertainment and Licensing segment.

Partner Brands’ revenues slumped 20% to $272.9 million due to a decline at all other Partner Brands, except MARVEL and BEYBLADE. Apart from the United States and Canada segment, Partner Brand revenues declined at the International segment.

The Hasbro Gaming revenues came in at $267.4 million, which decreased 22% on a year-over-year basis. Robust performances by DUNGEONS and DRAGONS, JENGA, CONNECT 4 and DON’T STEP IN IT were overshadowed by the weakness at PIE FACE and other properties. Hasbro Gaming revenues declined in all three major operating segments of the company. Notably, Hasbro’s total gaming category declined 4% to $1.44 billion in 2018.

Meanwhile, Emerging Brands’ revenues increased 5% year over year to $119 million.

Hasbro, Inc. Price, Consensus and EPS Surprise

Hasbro, Inc. Price, Consensus and EPS Surprise | Hasbro, Inc. Quote

Segmental Revenues

Regionally, net revenues at the United States and Canada segment decreased 9% to $685.6 million. The segmental performance was primarily impacted by the Toys “R” Us liquidation and higher mix of close out activity. However, operating profit margin contracted 450 basis points (bps) year over year to 15%.

The International segment’s revenues summed $618.5 million, down 14% 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’s operating margin declined to 4.7% compared with 11% in the prior-year quarter.

Revenues at the Entertainment and Licensing segment also declined 31% year over year to $85.1 million.

Operating Highlights

Hasbro's cost of sales, as a percentage of net revenues, increased 390 bps to 43.3%. Meanwhile, selling, distribution and administration expenses, as a percentage of net revenues, were 31.2%, a sharp increase from 19.4% in the prior-year quarter. Overall operating margin contracted to 0.8% from 17% in the year-ago quarter.

Balance Sheet

Cash and cash equivalents as of Dec 30, 2018, amounted to $1,182.4 million, down from $1,581.2 million as of Dec 31, 2017. At the end of the reported quarter, inventories totaled $443.4 million compared with $433.3 million in the prior-year quarter.

Long-term debt increased to nearly $1,695.1 million as of Dec 30, 2018, from $1,693.6 million as of Dec 31, 2017.

Hasbro’s board of directors declared a quarterly cash dividend of 68 cents per common share, up 8% from the prior quarterly dividend. The dividend will be payable May 15, 2019, to its shareholders of record at the close of business as of May 1, 2019.

In 2018, the company repurchased 2.66 million shares for $250.1 million. At the end of the reported quarter, $428 million was available under the current share repurchase authorization.

Zacks Rank & Stocks to Consider

Hasbro, which share space with JAKKS Pacific, Inc. JAKK, currently has a Zacks Rank #4 (Sell).

Better-ranked stocks in the same space include Take-Two Interactive Software, Inc. TTWO and Glu Mobile Inc. GLUU. Take-Two Interactive Software sport a Zacks Rank #1 (Strong Buy), whereas Glu Mobile carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Take-Two Interactive Software has reported better-than-expected earnings in each of the preceding four quarters, the average being 24.3%.

Glu Mobile’s long-term earnings is likely to grow by 15%.

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