Earnings Preview: Hasbro

Hasbro Inc. (HAS - Analyst Report), a multi-national toy and boardgame company in the United States of America, is slated to release its fourth-quarter 2011 results on Monday, February 6, before the opening bell. The current Zacks Consensus Estimate for the fourth quarter stands at $1.06 per share, representing an upside of 7.27% year over year.

With respect to earnings surprises over the trailing four quarters, Hasbro has oscillated greatly from negative 13.16% to positive 29.41%. The average earnings surprise was a positive 4.82%. This implies that the company has beaten the Zacks Consensus Estimate by this magnitude over the last four quarters.

Preliminary 4Q11 Results

In mid-January, Hasbro announced preliminary sales results for the fourth quarter and fiscal 2011 that came in below the Street expectation. The Pawtucket, Rhode Island-based company expects to report total revenue of $1.33 billion for the fourth quarter of  2011, up 4% year over year as demand for toys was below its expectations during the crucial holiday season.

For 2011, the second largest U.S. toy maker after Mattel Inc (MAT - Analyst Report) anticipates revenue growth of 7% or $4.28 billion as compared with $4.0 billion in 2010 and earnings per share upside of 2% to 4%, implying profit of $2.79 to $2.85 per share versus $2.74 in 2010. Segment wise, net revenue from the U.S. and Canada are expected to plunge in the fourth quarter as well as in fiscal 2011, whereas International segment net revenue is expected to rise.

Agreement of Estimate Revisions

Following the weak preliminary sales results, a clear negative trend was palpable in the last 30 days, implying analysts’ negative bias on the stock. Notably, 7 analysts out of 10 slashed their estimates while none moved in the opposite direction.

For full-fiscal 2011, 6 analysts reduced their estimates. Soft global economic backdrop and poor retail business during the crucial holiday are mainly responsible for this lackluster performance.

Magnitude of Estimate Revisions

In the last 30 days, estimates have moved down drastically both over the near and long term, as seen from the magnitude of the Zacks Consensus Estimate trend. Estimates for the fourth quarter and fiscal 2011 moved down from $1.18 to $1.06 and from $3.26 to $3.11, respectively. Estimates for 2012 also registered a steep decline from $3.26 to $3.11.

Our Take

Hasbro’s strong product line up for 2012, strategic partnerships with broadcasting companies like Discovery, Universal Pictures and Electronic Arts, as well as aggressive penetration into emerging markets augur well for the company. The company also remains focused on enhancing shareholder value.

However, increasing input costs and wage inflation keep us cautious on the stock. Moreover, charges relating to restructuring and investment in licensing segments remain an overhang. Additionally, sluggish holiday season sales and highly competitive industry also add to our worry.

Mattel, the  largest manufacturer of toys in the world and an arch rival of Hasbro, recently reported fourth quarter 2011 earnings of $1.07 per share, above the Zacks Consensus Estimate of $1.01 as well as the year-ago quarter earnings of 89 cents per share. During its fourth quarter earnings call, Mattel also boosted its quarterly dividend by 35% to 31 cents.

Hasbro currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

Read the full analyst report on HAS

Read the full analyst report on MAT