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Sydnee Gatewood
Sydnee Gatewood
Articles (1117) 

Hasbro Shares Slide as Trade War Boosts Costs, Dents Sales

Toymaker’s earnings, revenue fall short of expectations as tariff threats impact operations

October 22, 2019 | About:

Shares of toymaker Hasbro Inc. (NASDAQ:HAS) tumbled more than 10% in early trading on Tuesday after higher costs related to the U.S.-China trade war impacted third-quarter results.

The Pawtucket, Rhode Island-based company, which is known for top toy brands like Play-Doh, Monopoly, Nerf and My Little Pony, posted adjusted earnings of $1.84 per share for the quarter, well below Refinitiv’s estimates of $2.21. Revenue recorded a marginal increase from the prior-year quarter to $1.1.58 billion, but missed expectations of $1.72 billion.

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In a statement, Hasbro Chairman and CEO Brian Goldner said the company “remains on track to deliver profitable revenue growth in 2019” despite its performance being impacted by the “threat and enactment of tariffs” on toys imported from China, which reduced revenue during the quarter as a result of increased shipping and warehousing costs and caused cancellations of direct orders.

CNBC’s Elly Cosgrove reported a 10% tariff on a number of imported goods, including toys, will go into effect on Dec. 15. The import tax was originally scheduled to be implemented in September, but the date was pushed back over concerns for the holiday shopping season, a crucial time for retailers.

Chief Financial Officer Deborah Thomas said the trade environment is “impacting the timing of revenues, driving incremental expenses and putting upward pressure on our underlying tax rate.”

"In addition, third-quarter operating profit was negatively impacted versus last year from lower Entertainment, Licensing and Digital segment margins, a higher revenue mix of lower margin Partner Brands and incremental shipping and warehousing costs, which partially offset our cost savings,” she said. “We anticipate disruption throughout the remainder of 2019 as retailers work to manage costs and inventory and we are working to mitigate the impact on consumers this holiday season.”

Tariffs aren’t the only headwind the company is facing, however. Demand for Hasbro’s products is diminishing as consumers embrace mobile and video games over traditional board games and toys.

Although Hasbro recorded increases in sales for games like Dungeons & Dragons and Magic: The Gathering, they were offset by low sales of Pie Face and Speak Out. The overall gaming segment saw revenue decrease 17 % to $232.3 million.

Its Franchise Brands business also recorded an 8% decline in sales to $779.7 million on the back of lower demand for its Nerf, Baby Alive, Play-Doh and My Little Pony brands.

In contrast, the Partner Brands division recorded 40% sales growth to $427 million, driven by Hasbro products released ahead of the premieres of “Frozen 2” and the new “Star Wars” film. The toymaker also recorded strong merchandise sales for Marvel’s “Avengers” and “Spider-Man” movies as well as Disney’s “Descendants 3.”

The Emerging Brands unit also recorded a 1% sales increase to $136.2 million as the company shipped more Power Rangers and Playskool toys like Mr. Potato Head.

Looking ahead, Goldner disclosed he expects Hasbro’s previously announced acquisition of Entertainment One Ltd. (LSE:ETO), a Canadian mass media and entertainment company commonly known as eOne, to close in the fourth quarter.

“The strategic opportunity to bring onboard the brands, capabilities and talent from eOne is compelling to our long-term prospects as a leading global play and entertainment company and we look forward to sharing more about our plans after the close," he said.

With a market cap of $12.64 billion, shares of Hasbro were trading around $102.78 on Tuesday morning. GuruFocus estimates the stock has climbed 50% year to date.

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Disclosure: No positions.

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About the author:

Sydnee Gatewood
I am the editorial director at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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