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Hasbro (HAS) Q3 Earnings & Revenues Miss Estimates, Stock Down

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Hasbro, Inc. (HAS - Free Report) reported dismal third-quarter 2018 results, wherein both earnings and revenues missed the Zacks Consensus Estimate. Following the results, shares of the company decreased more than 7% during pre-market trading session. In the past three months, the stock has lost 7% compared with the industry’s 16.9% decline.

Adjusted earnings of $1.93 per share lagged the consensus mark of $2.24. The bottom line also declined 7.7% from the prior-year quarter’s number.

Net revenues totaled $1,569.7 million, which missed the consensus estimate of $1,714 million and also decreased 12.4% from the prior-year quarter. The decline in revenues can be primarily attributed to the liquidation of Toys “R” Us in the United States, Europe and Asia Pacific. International revenues, mostly in Europe, were impacted by change in consumer shopping behaviors.

Brand Portfolio Performances

The Franchise Brand posted revenues of $847.7 million, down 5% year over year. Notably, increase in sales at MONOPOLY, MAGIC: THE GATHERING, PLAY-DOH and BABY ALIVE was overshadowed by a dismal performance at other Franchise Brands, including NERF, MY LITTLE PONY and TRANSFORMERS. In the United States and Canada, Franchise Brand revenues increased marginally. The Entertainment and Licensing segment also witnessed an increase in Franchise Brand revenues. However, international segment declined in the quarter.

Partner Brand revenues slumped 37% to $305.8 million due to a decline at all other Partner Brands except MARVEL and BEYBLADE. Apart from the United States and Canada, Partner Brand revenues declined at the International segment.

The Hasbro Gaming revenues came in at $280.8 million, up 0.2% on a year-over-year basis. Robust performances of DUNGEONS and DRAGONS, JENGA, DUEL MASTER and DON’T STEP IN IT were overshadowed by the weakness at PIE FACE and other properties. Hasbro Gaming revenues increased in both the United States and Canada segment but decreased in the International, and the Entertainment and Licensing segments. Notably, the company’s total gaming category in the quarter under review was up 5% to $447.8 million.

Emerging Brands revenues increased 2% year over year to $135.3 million.

Segmental Performance

Regionally, net revenues from the United States and Canada segment decreased 7% to $924.2 million. The segmental performance was primarily impacted by the Toys “R” Us liquidation. However, operating profit margin expanded 260 bps year over year owing to favorable product mix and lower administrative and royalty expenses.

International segment revenues summed $560.7 million, down 24% year over year. The decline was primarily due to Toys “R” Us U.K. liquidation and the company’s efforts to clear unsold inventory in Europe. The segment recorded operating profit of $66.3 million compared with $132 million in the third quarter of 2017.

However, the Entertainment and Licensing segment revenues grew 45% year over year to $84.8 million, backed by multi-year digital streaming agreement for Hasbro television programming as well as revenues from the 2017 My Little Pony: The Movie. Also, the segment's operating profit margin expanded to 39.7% from 28.9% in the prior-year quarter.

Hasbro, Inc. Price, Consensus and EPS Surprise

Operating Highlights

Hasbro's cost of sales, as a percentage of net revenues, increased 100 bps to 41.8%. Meanwhile, selling, distribution and administration expenses, as a percentage of net revenues, were 17.4% flat year over year. Overall operating margin contracted 10 bps to 20% year over year in the quarter under review.

Balance Sheet

Cash and cash equivalents as of Sep 30, 2018, amounted to $907.1 million, down from $1.24 billion as of Oct 1, 2017. At the end of the reported quarter, inventories totaled $610.9 million compared with $629.1 million in the prior-year quarter.

Long-term debt increased to nearly $1,694.7 million as of Sep 30, 2018, from $1,693.3 million as of Oct 1, 2017.

Hasbro’s board of directors declared a quarterly cash dividend of 63 cents per common share. The dividend will be payable Nov 15, 2018, to its shareholders of record at the close of business as of Nov 1, 2018.

In the third quarter, the company repurchased 801,466 shares for $79.5 million. At the end of the reported quarter, $485.7 million was available under the current share repurchase authorization.

Hasbro, which shares space with Glu Mobile Inc. , JAKKS Pacific, Inc. (JAKK - Free Report) and Activision Blizzard, Inc. , carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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