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Why Is Hasbro (HAS) Down 3.6% Since Last Earnings Report?

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A month has gone by since the last earnings report for Hasbro (HAS). Shares have lost about 3.6% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important drivers.

Hasbro’s Q4 Earnings and Revenues Miss Estimates

Hasbro reported dismal fourth-quarter 2018 results, wherein both earnings and revenues missed the Zacks Consensus Estimate for the second successive quarter. 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.

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.

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 -122.89% due to these changes.

VGM Scores

At this time, Hasbro has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 #4 (Sell). We expect a below average return from the stock in the next few months.



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