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Will Soft Demand Hurt Hasbro's (HAS) Q3 Sales & Earnings?

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Hasbro, Inc. (HAS - Free Report) is scheduled to report third-quarter 2018 results on Oct 22, before the opening bell.

Like most other traditional toymakers, Hasbro is affected by declining consumer demand and sales crunch. The company’s shares have gained 1.3% over the past year, underperforming the industry’s rally of 10.1%.

Meanwhile, despite testing waters with distribution methods, development of digital-play components and exploration of ventures with other industries, Hasbro is unable to revive sales post the Toys ‘R’ Us liquidation.


In fact, owing to the liquidation, sales of Hasbro across every brand declined in the second quarter of 2018. We believe that effect of this liquidation has lingered in the third quarter as well, as Toys “R” Us was the last major chain that was fully dedicated to selling toys.

Let’s take a look at factors that are likely to have affected Hasbro’s results in the third quarter.

Top-Line Picture Bleak

Hasbro is facing declining demand for traditional toys. Similar to most other companies, Hasbro has been competing with providers of a broad array of alternative modes of entertainment — including video games, MP3 players, tablets, smartphones and other electronic devices. Due to shift in demand patterns of kids, Hasbro’s revenues are pressurized and not likely to recover soon.

In the second quarter of 2018, the company’s net revenues declined 7% from the year-ago level. Further, the Zacks Consensus Estimate for revenues in the third quarter is pegged at $1.72 billion, suggesting a year-over-year decrease of 3.7%.

Will Earnings Grow Defying Sales Trend?

The consensus estimate for Hasbro’s third-quarter earnings is pegged at $2.26, suggesting an increase of 8.1% from the year-ago quarter. This defies the company’s earnings trend in the second quarter, wherein the bottom line declined 9.4% from the prior-year quarter’s number.

We believe, while soft sales are likely to have affected profits in the third quarter, the company has witnessed growth in the Entertainment and licensing segment, backed by improved consumer products. The segment’s operating profit margin improved 680 basis point (bps) in the last-reported quarter. The trend is likely to have continued in the to-be-reported quarter.

Our Quantitative Model Does Not Predict a Beat

Hasbro doesn’t have the right combination of the two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — which increases odds of an earnings beat.

Earnings ESP: The company has an Earnings ESP of -2.66%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Hasbro currently has a Zacks Rank #3.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Hasbro, Inc. Price and EPS Surprise

 

 

Stocks to Consider

Here are some stocks from the Consumer Discretionary sector that investors may consider as our model shows that they have the right combination of elements to come up with an earnings beat in the to-be-reported quarter:

Netflix (NFLX - Free Report) has an Earnings ESP of +0.71% and a Zacks Rank #3. The company is scheduled to report quarterly numbers on Oct 16.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Pool Corp (POOL - Free Report) currently carries a Zacks Rank #2 (Buy) and has an Earnings ESP of +0.64%. The company is slated to report quarterly numbers on Oct 18.

Royal Caribbean (RCL - Free Report) has an Earnings ESP of +0.44% and it presently has a Zacks Rank #3. The company is expected to announce quarterly numbers on Nov 6.

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