Toy maker Hasbro (HAS) saw its shares up 4% in Monday's trading session after reporting second quarter earnings. Revenue fell short of analysts' targets, but a healthy earnings per share beat seemed to provide investors with hope in this slow growth company.
In the second quarter (call), Hasbro recognized revenue of $811.5 million. Analysts had been hoping for $830.1 million. Both numbers are down from last year's reported $908.5 million, with strength in the Transformers toy line. Net income was $43.44, representing earnings per share of $0.33. Analysts were hoping for $0.23 in reported earnings per share. Revenue numbers were hit hard by foreign exchange rates, which is one of the issues Hasbro is trying to fix by shifting some of its revenue into the third and fourth quarters.
Revenue by operating segment:
- United States and Canada: $406.6 million, -19%
- International: $360.5 million, -4%
- Entertainment and Licensing: $43.2 million, +59%
Foreign exchange rates really hurt Hasbro during the quarter. The company saw big gains in Brazil, Colombia, Chile, Peru, and Russia during the quarter. International sales continue to get close to evening out North American as a revenue source for Hasbro.
A higher operating profit was reported by Hasbro during the quarter. This was contributed to a lower cost of sales (38.5% vs. 41.6%) and stronger sales of more profitable lines. The company's entertainment division for example sees higher operating profits. Hasbro's subsidiary Wizard of the Coast (Magic, Pokemon) also saw higher sales on its extremely profitable businesses.
Several new products are coming from Hasbro in the next several quarters, including:
- New interactive Furby, which I wrote about back in May. The toy has begun to be added to top ten Christmas toy lists and is expected to begin release in September
- New products from a partnership with Zynga (ZNGA)
- 1D branded products to capitalize on success of British boy band One Direction
- Strong new toy lines in conjunction with upcoming movie lineup in 2013 including: Gi Joe (March), Iron Man (MAY), Star Trek , Thee Wolverine (July), Thor (November)
- In August, a new toy announcement will be made in partnership with a LucasFilm August announcement
- Launch of My Little Pony comic series, first in toy brand's history
- Kre-O Star Trek toys, Hasbro's building toy (similar to Lego) now expands into its third brand (Battleship, Transformers)
- Transformers mobile game through a partnership with DeNa Co.
The entertainment and licensing segment continues to be a strong point for Hasbro. Hasbro owns 50% of The Hub, a joint venture with Discovery (DISCA). In 2012, Hasbro is expecting $300 million in television related revenue. Hasbro's own toy line Littlest Pet Shop will debut with a tv show in the fall and will expand to international audiences in 2013. The show should boost sales of this Hasbro brand.
Hasbro also saw increased sales of Marvel related merchandise with the launch of The Avengers movie. Sales of Avenger related toys were higher than expected. The company's contract with Marvel goes through 2018. Spider Man toy sales will be reported in the next quarter and the following quarter could see increased sales around the time of The Avengers DVD release. Two new Marvel movies (Iron Man 3, Thor 2) next year should help Hasbro's sales numbers.
Hasbro recently raised its dividend and now yields a nice 4.3%. The company continues to generate significant free cash flow and reported a balance of $777.9 million at the end of the quarter. Despite the pop in yesterday's share price, Hasbro still trades in the middle of its fifty two week range. Shares are up 9.5% on the current calendar year.
In my last article, I said Hasbro should be trading above $40. I think shares could trade closer to $45 by the end of 2013. The company is expected to post earnings per share of $2.83 in fiscal 2012 and $3.06 next fiscal year. New product lines like Kre-O, the success of The Hub, and the new Furby line could dramatically boost 2012 third and fourth quarter sales. Analysts might get more bullish about shares as the holiday nears, so don't sit on the sidelines with this one.