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Hasbro Is a Solid Buy

August 08, 2014 | About:
Suravi Thacker

Suravi Thacker

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Retail sales surged 0.2% for the month of June, indicating higher spending by people in the U.S. However, toy space seems not to be benefiting much from this. The toy retailers are indeed witnessing lower sales as children shift to other modes such as smartphones and tablets.

Hasbro (HAS) is a toy manufacturer, which posted its second quarter results recently. The numbers were in accordance with the Street’s estimates, leading to a fall in its share price. However, the numbers look better when we take a closer look at them.

The details of the quarter

Although it was below the estimates, revenue surged 8.2% to $829.3 million, over last year. The key segments which drove revenue higher were the Boys segment, Girls segment and Entertainment & Licensing segment. The Girls category grew 10% and Entertainment & Licensing category jumped 35% because of the addition of Backflip Studios as well as the growth in digital gaming. The Boys category was indeed one of the bright spots with a 32% surge in revenue over the prior year’s quarter.

Hasbro owns the “Transformers” brand and holds toy licenses for characters of Marvel Comics such as Iron Man and Spider Man. Hence, these brands played an important role in boosting revenue. Also, the release of movies, such as Spider-Man and Transformers, led to higher demand for action toys.

However, this was offset by weakness in Games and Preschool segments, which dropped 12% and 4%, respectively. Games category witnessed decline in brands such as Duel Masters and Twister. Children losing interest in board games and the growing popularity of smartphones and tablets played a key role.

Geographically, the International segment did remarkably well with a 12% rise in revenue as sales in regions such as Asia Pacific, Latin America and Europe increased. However, it was partially offset by 2% lower revenue from the U.S. and Canada.

Moving down to the bottom line, adjusted earnings climbed 24% to $0.36 per share, over last year. This was slightly below the estimate of $0.37 per share.

At the other end

Although Hasbro was unable to live up to investors’ expectations, its performance was much better than its rival Mattel (MAT). Mattel also reported its second quarter numbers recently. But its results were quite disappointing. Due to falling demand for Barbie, total revenue declined 9% over last year. Also, sales of Barbie decreased 15%, whereas that of Hot Wheels and Fisher Price plunged 2% and 17%, respectively. Nonetheless, the toy maker is making efforts to boost its revenue by expanding its popular American Girl business and gearing up its marketing efforts for the fall. Also, it has purchased MEGA Brands, which will add to its top line.

Even Hasbro has a number of plans for the second half of the year, since it is the most important part of the year for toy retailers. Consumers tend to spend a lot during this time, especially the holiday period. Hasbro released Magic: The Gathering Conspiracy which has given a boost to casual activity in stores. Also, the release of the Magic 2015 core set is expected to be beneficial. Further, it has introduced new games such as My Monopoly, Battle Masters and Simon Swipe.

Final words

These efforts should definitely help the toy maker grow its business. Hasbro has been doing well with growing financial each quarter. It is not always important for companies to meet the estimate. The fact that Hasbro is doing better than its industry peers and has measures to grow further, makes it an interesting pick. Hence, investors should take note of this company.


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