Rating
Mattel Stock Performance
Mattel Stock Performance
Hasbro Shoots Up on Cost Cuts
Hasbro Inc. (HAS) announced its second-quarter 2010 earnings of 29 cents per share, up 11% year over year and well ahead of the Zacks Consensus Estimate of 24 cents. The better-than-expected results were driven by severe cost-control initiatives, which more than offset the muted sales performances.
Hasbro posted net revenue of $737.8 million in the quarter, marking a decline of 7% year over year after taking into consideration a $1.6 million favorable foreign exchange impact. The drop in the quarter’s revenue growth was due to tough comparisons as the company had shipments for the movie-based Transformers and G.I. Joe toys last year. Operating profit jumped 9% year over year to $79.7 million. Operating profit margin soared to 10.8% from 9.2% recorded in year-ago quarter.
Hasbro continues to return wealth to investors in the form of share repurchase programs and dividend distribution.
Performance Highlights
Hasbro saw worldwide net revenue growth in two of its four major product categories. Annually, the Games and Puzzles category increased 22% to $262.2 million, the Preschool category grew 32% to $103.5 million, the Girls category was flat at $133.2 million and the Boys product category declined 34% to $238.8 million.
Geographically, net revenue from the U.S. and Canada region fell 9% year over year to $444.5 million, while its operating profit jumped 4% to $58.7 million.
The International segment reported net revenue of $261.4 million, down 5% year over year. The segment registered operating profit of $11.6 million, which plummeted 30% year over year, but improved substantially from a loss of $2.4 million in first quarter 2010.
On the other hand, the Entertainment and Licensing segment experienced a significant growth in revenues in the second quarter. Net revenue in this segment spiked 26% year over year to $30.5 million, while its operating profit showed an even greater increase to $13 million from $3 million in year-ago quarter.
With regards to expenditures, we noted a 32.1% drop in Hasbro’s royalty expenses from the prior-year period to $50.1 million. Product development expenses totaled $47.5 million, up 9.2% year-over-year. Advertising expenses declined 12% from the prior-year period to $71.9 million. Hasbro also reported a 2.7% drop in selling, distribution and administration expenses to $176.9 million.
Financials
Total assets stood at $3.9 billion at the end of the second quarter compared with $3.5 billion at the end of year-earlier quarter. Hasbro’s long-term debt was at $1.4 billion as against $1.1 billion in the comparable quarter last year.
Hasbro repurchased a total of 6.7 million shares of common stock during the second quarter at a total cost of $271.4 million and an average price of $40.49 per share.
Guidance
Hasbro expects both revenue and earnings to increase in the balance of 2010, including the expected dilution of $0.25 to $0.30 million from the joint venture with Discovery Communication (HUB).
We believe Hasbro’s strong product line-up and strategic association with Discovery, Universal Pictures and Electronic Arts Inc. (ERTS), aggressive tapping of the Latin American market and commendable expense management hold promises for investors. Although Hasbro expects decent sales growth with several new launches in the second half of the year, we believe it would be tough for it to outperform its achievement in 2009, which included the release of Transformers 2, G.I. Joe and Wolverine. Moreover, the long-awaited HUB network, slated for launch on October 10, also not anticipated to be accretive before 2011.
We currently have a short-term Hold rating on Hasbro.
Last Friday, Hasbro’s rival Mattel Inc. (MAT) reported its second-quarter earnings results of 14 cents per share, which missed the Zacks Consensus Estimate by a penny.
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