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Why Is Hasbro (HAS) Down 4.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Hasbro (HAS - Free Report) . Shares have lost about 4.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Hasbro due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Hasbro (HAS - Free Report) Q3 Earnings and Revenues Lag, Margins Down

Hasbro, Inc. reported lower-than-expected results in third-quarter 2019. Both the top and bottom lines lagged the Zacks Consensus Estimate.

It reported adjusted earnings of $1.84 per share, missing the Zacks Consensus Estimate of $2.22 by 17.1%. Also, the said metric declined 4.7% from year-ago reported figure of $1.93 per share.

In the quarter under review, net revenues came in at $1,575 million, which lagged the consensus estimate of $1,735 million by 9.2% but grew slightly from the prior-year figure of $1,570 million. The upside was primarily attributed to robust performance of the Entertainment, Licensing and Digital business, partially offset by a decline in the U.S. and Canada segment’s revenues.

Brand Performances

The Franchise Brand posted revenues of $779.7 million, down 8% year over year. Revenues increased in MAGIC: THE GATHERING, MONOPOLY and TRANSFORMERS, but were more than offset by declines in NERF, MY LITTLE PONY, BABY ALIVE and PLAY-DOH. Revenues declined in the U.S. and Canada, and International segments, but improved in the Entertainment, Licensing and Digital segment.

Partner Brands’ revenues increased an impressive 40% from the prior-year quarter to $427 million owing to Marvel's Avengers and Spider-Man franchises, and Disney's Descendants 3. The same grew in the United States and Canada, and in international regions served by the company.

Revenues at Hasbro Gaming totaled $232.3 million, reflecting fall of 17% from the prior-year period. Revenues increased from DUNGEONS & DRAGONS and other games, which were offset by declines in PIE FACE and SPEAK OUT. Hasbro gaming revenues decreased in all the three operating segments. However, its total gaming category increased marginally to $449.4 million.

Meanwhile, Emerging Brands’ revenues grew 1% year over year to $136.2 million, driven by increased shipments in POWER RANGERS and PLAYSKOOL, partially offset by lower Quick Strike collectible offerings.

Segmental Revenues

Regionally, net revenues at the U.S. and Canada segment fell 2% to $898.3 million in the quarter. The segmental performance was attributed to decline in revenues from Franchise Brands and Hasbro Gaming. Moreover, operating margin contracted 170 basis points (bps) from the prior-year quarter to a negative 13%.

The International segment’s revenues amounted to $561.1 million, which rose 1% year over year. The segment’s operating margin came in at 1% versus a negative 50% reported in the year-ago quarter.

Meanwhile, revenues at the Entertainment, Licensing and Digital segment — which was named Entertainment and Licensing earlier — improved 20% year over year to $115.8 million. However, the segment’s operating margin contracted to 34% from 99% recorded in the prior-year quarter.

Operating Highlights

Hasbro's cost of sales, as a percentage of net revenues, contracted 200 bps to 39.8%. Selling, distribution and administration expenses — as a percentage of net revenues — were 17.5%, up 10 bps from the prior-year quarter.

Balance Sheet

Cash and cash equivalents as of Sep 29, 2019 amounted to $1,060 million, up from $907.1 million on Sep 30, 2018. At the end of the reported quarter, inventories totaled $589.1 million compared with $610.9 million in the comparable year-ago period. As of Sep 29, 2019, long-term debt increased slightly to $1,696.2 million from 2018-end.

Hasbro’s board of directors declared a quarterly cash dividend of 68 cents per common share. The dividend will be payable on Nov 15, 2019 to its shareholders of record at the close of business as of Nov 1, 2019.

In third-quarter 2019, the company repurchased 14,345 shares of common stock at an average price of $104.82 per share for $9.5 million. At the end of the quarter, $367.8 million was available under the current share repurchase authorization.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -34.11% due to these changes.

VGM Scores

At this time, Hasbro has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Hasbro has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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