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Hasbro, Inc. (NASDAQ:HAS) is engaged in providing leisure time products with a portfolio of brands and entertainment properties ranging from Transformers to Monopoly and My Little Pony. The company reported earnings before the market opened on 10Feb14 and on the surface all the results were bad with the company reporting earnings of $1.12 per share (missing estimates by $0.10) on revenue of $1.28 billion (missing estimates by $20 million). What I'd like to do at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.

Segment Revenue

Segment Revenues (millions)

4Q13

4Q12

Y/Y

Boys

$ 349.1

$ 414.1

-16%

Games

$ 437.4

$ 428.6

2%

Girls

$ 348.8

$ 292.6

19%

Preschool

$ 146.4

$ 148.3

-1%

Total

$ 1,281.7

$ 1,283.6

0%

Compared to last year total revenue has decreased but not by much. Things of interest to me are the 16% decrease in Boys revenues, which account for 27% of total revenues. The Boys segment obviously makes toys for boys and the decline was primarily due to declines in Marvel products that had high comparisons to 2012. Girls segment revenues increased 19% and account for 27% of total revenues. The Girls segment obviously makes toys for girls, and the increase in revenues was primarily due to new initiatives such as My Little Pony Equestria Girls.

Income Statement

Income Statement (millions)

4Q13

4Q12

Y/Y

Revenues

$ 1,281.7

$ 1,283.6

0%

Cost of sales

$ 536.2

$ 516.4

4%

Royalties

$ 95.4

$ 89.5

7%

Product Development

$ 53.1

$ 57.7

-8%

Advertising

$ 120.8

$ 142.9

-15%

Amortization of Intangibles

$ 40.5

$ 15.8

156%

Program Production Cost Amortization

$ 13.7

$ 15.9

-14%

Selling, Distribution and Administration

$ 238.4

$ 245.2

-3%

Operating Profit

$ 183.6

$ 200.2

-8%

Interest expense

$ 19.2

$ 22.6

-15%

Other (income) expense, net

$ 3.2

$ 3.9

-18%

Earnings before income taxes

$ 161.2

$ 173.7

-7%

Income taxes

$ 33.1

$ 43.4

-24%

Net earnings

$ 128.1

$ 130.3

-2%

Net loss attributable to noncontrolling interests

$ (1.5)

$ -

N/A

Net earnings attributable to Hasbro

$ 129.6

$ 130.3

-1%

Non-GAAP Restructuring charges

$ 0.1

$ 0.2

-76%

Non-GAAP Pension charges

$ -

$ -

N/A

Non-GAAP Arbitration award settlement charges

$ (0.1)

$ -

N/A

Non-GAAP Product related charges

$ 0.2

$ -

N/A

Avg. basic outstanding shares

130.8

129.8

1%

Avg. diluted outstanding shares

132.4

131.6

1%

Earnings per basic share

$ 1.14

$ 1.21

-6%

Earnings per diluted share

$ 1.13

$ 1.20

-6%

Looking at the income statement at first glance is disappointing as you look at the bottom line and notice that earnings decreased by 6% from last year; I'd like to sift through the income statement to see why that was the case. Advertising expenses decreased by 15% while amortization of intangibles increased 156% and program production cost amortization decreased 14% which all contributed to a decrease of 8% in operating profits. Interest expenses decreased 15% and other expenses decreased 18% but earnings before income taxes decreased 7%. Income taxes decreased obviously to the tune of 24% and net earnings decreased by 2%. After all the non-GAAP charges, total earnings decreased 6%.

Balance Sheet

Balance Sheet (millions)

4Q13

4Q12

Y/Y

Cash and cash equivalents

$ 682.4

$ 849.7

-20%

Accounts receivable

$ 1,093.6

$ 1,030.0

6%

Inventories

$ 348.8

$ 316.0

10%

Other current assets

$ 355.6

$ 312.5

14%

Total current assets

$ 2,480.5

$ 2,508.2

-1%

Property, plant and equipment

$ 236.3

$ 230.4

3%

Other assets

$ 1,685.5

$ 1,586.8

6%

Total assets

$ 4,402.3

$ 4,325.4

2%

Short-term borrowings

$ 8.3

$ 224.4

-96%

Current portion of long-term debt

$ 428.4

$ -

#DIV/0!

Payables and accrued liabilities

$ 926.6

$ 736.1

26%

Total current liabilities

$ 1,363.3

$ 960.4

42%

Long-term debt

$ 959.9

$ 1,396.4

-31%

Other liabilities

$ 351.3

$ 461.2

-24%

Total liabilities

$ 2,674.5

$ 2,818.0

-5%

Redeemable noncontrolling interests

$ 45.4

$ -

#DIV/0!

Total shareholders' equity

$ 1,682.3

$ 1,507.4

12%

Total liabilities, redeemable noncontrolling interests and shareholders' equity

$ 4,402.3

$ 4,325.4

2%

On the current asset side of things, cash and cash equivalents decreased an entire 20%, while inventories increased 10% and other current assets increased 14%. Total current assets decreased a total 1% but total assets increased 2%. Short-term borrowings decreased a whopping 96% and payables increased 26% which assisted the 42% increase in total current liabilities. Long-term debt decreased 31% and other liabilities decreased 24% causing total liabilities to decrease 5%.

Conclusion

The company reported earnings which were 6% lower than the year before on flat revenue, while the share price was up 32.58% in the past year excluding dividends. The decrease in earnings was due primarily to worse operating efficiency and tough revenue comparisons. The share count actually increased by 1% and contributed fractionally to earnings. I don't like this earnings report whatsoever. On a fundamental basis I believe this company is fairly valued with respect to 2015 earnings. The stock however was up 4.53% after reporting earnings in the face of an S&P500 which gained 0.16%. Despite the bad earnings the company generated $401.1 million in operating cash flow of which roughly $57 million will go towards dividends next quarter with the announced 8% increase to the quarterly dividend. I'm going to place this stock in the penalty box right now and think about it for the next week as my quarterly adjustments are coming due.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Hasbro's Earnings Decrease 6% Year Over Year, But Is It A Sell?