Hasbro Misses on Rev, EPS In Line

Hasbro Inc. (HAS - Analyst Report) has reported fourth quarter 2011 earnings per share of $1.06, which was in line with the Zacks Consensus Estimate of $1.06 but higher than 99 cents earned in the year-earlier quarter. In full-fiscal 2011, earnings were $2.82 per share versus $2.74 in 2010.

Hasbro’s net revenue of $1,329.3 million grew 4.0% from the year-ago quarter but lagged the Zacks Consensus Estimate of $1,336.0 million. Foreign exchange had an unfavorable impact of $13.3 million. Continuous outperformance by the Transformers and Beyblade brand along with the introduction of Sesame Street aided the revenue upside. Sustained double-digit growth in the International segment was the other factor to be thanked for the revenue growth. In full-fiscal 2011, revenue was $4.29 billion, up 7% year over year.

Hasbro continued to return value to investors in the form of a share repurchase and dividend distribution.

Performance Highlights

Hasbro experienced worldwide net revenue growth in two of its four major product categories, namely Boys and preschool which shot up a respective 29% and 15% to $536.3 and $169.8 million, on an annualized basis. On the other hand, Girls and Games categories fell 16% to $250.0 million and 11% to $370.6 million, respectively.

Geographically, net revenue from the U.S. and Canada segment declined 2% year over year to $592.8 million, while its operating profit registered a steeper decline of 28% to $50.8 million. Soft retail business during the crucial holiday was mainly responsible for this lackluster performance. The International segment reported net revenue of $669.8 million, up 8% year over year. The segment’s operating profit was $137.8 million, 6% higher than the year-ago quarter.

The Entertainment and Licensing segment also experienced a 20% year-over-year jump in revenue to $64.1 million. But the segment’s operating profit showed a greater increment of 44% to reach $21.5 million.

We noticed a 32.1% rise in Hasbro’s royalty expenses from the prior-year period to $104.5 million. Product development expenses totaled $47.4 million, down 23.4% year over year. Advertising expenses decreased 5.9% from the prior-year quarter to $135.2 million. Selling, distribution and administration expenses also decreased 11.4% to $202.2 million.

Financials

At quarter end, total assets were $4.13 billion compared with $4.10 billion at the end of the year-earlier quarter. Hasbro’s long-term debt was $1.40 billion, almost flat year over year.

Hasbro repurchased a total of 1 million shares of common stock during the quarter at a total cost of $423.0 million. At year-end, $227.3 million remained available in the current share repurchase authorization.

Since 2005, Hasbro repurchased $2.6 billion worth of common stock. Recently, the company has announced quarterly dividend of 36 cents, which is significantly up from 9 cents declared in 2005.

Outlook

Management expects year-over-year growth in revenue and earnings per share for 2012.

Our Take

Hasbro’s strong product line-up, strategic tie-ups, cost containment effort and its growing presence in emerging geographical regions bode well for future growth.

However, the consensus miss for fourth-quarter revenue concern us a bit. Moreover, charges relating to restructuring and investment in licensing remain overhangs.

Hasbro currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are maintaining our long-term Neutral recommendation on the stock. Last week, one of Hasbro’s closest competitors Mattel Inc. (MAT - Analyst Report) reported fourth quarter earnings of $1.07 per share, which was ahead of the Zacks Consensus Estimate.

Read the full analyst report on HAS

Read the full analyst report on MAT