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Hasbro Beats Earnings and Revs in 1Q

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Hasbro Inc.’s (HAS - Free Report) first-quarter 2013 adjusted earnings per share of 5 cents beat the Zacks Consensus Estimate by 66.7% and increased 25.0% year over year. Top-line growth combined with adjusted operating margin expansion led to the year-over-year growth in earnings.

However, on a reported basis, including restructuring charges and favorable tax adjustments, the company posted loss per share of 5 cents, wider than the year-earlier loss of 2 cents per share.

Hasbro’s net revenues of $663.7 million grew 2.2% from the year-ago quarter and beat the Zacks Consensus Estimate of $641.0 million. Revenues include a negative $3.3 million impact from currency translation. The Games, Girls and Preschool product categories were the major contributors to the top-line growth.

Behind the Headline Numbers

Hasbro’s product segments comprise Girls, Games, Boys and Preschool categories. Revenues at the Games category grew 26% to $230.9 million. Magic: The Gathering, Boys Action Gaming, Angry Birds Star Wars and Transformers games performed well in the reported quarter.

The Girls category surged 23.0% to $114.8 million year over year. Products such as The Furby, My Little Pony and One Direction supported revenue growth.

The Preschool category saw an 8% increase in revenues to $75.2 million driven by Play-Doh and Playskool Heroes brands.

Despite decent performance of Marvel, Nerf and G.I. Joe products, the Boys category fell 20% to $242.8 million due to sluggish performance of several other brands.

Segment-wise, net revenues from the U.S. and Canada segments grew 4% year over year to $342.1 million, reflecting growth in the Girls and Games categories.

Though revenue increase was moderate, the segment’s operating profit skyrocketed 162.0% to $37.7 million driven by improved product mix.

Net revenues at the International segment were flat at $289.8 million. Revenues in the International segment reflect a tailwind from Latin America (up 17%) and Asia-Pacific (21%) but a headwind from Europe (down 7.0%). Net revenues in the International segment grew 1% excluding a negative $3.0 million impact of foreign exchange.

The segment’s operating loss was $4.5 million, narrower than the year-ago loss of $5.1 million.

Entertainment and Licensing segment revenues grew 5.0% year over year to $30.8 million. The sale of television programming in all formats in the U.S. and abroad drove segment revenues. However, the segment’s operating profit declined 32% to $5.3 million on a year-over-year basis.

As a percentage of net revenues, Hasbro’s royalty expenses fell 60 basis points (bps), and cost of sales dipped 20 bps. Selling-distribution expenses declined 160 bps, advertising grew 10 bps whereas product development costs were flat,. All these culminated to an adjusted operating margin expansion of 190 bps to 6.0%.

Cost Savings

In the fourth quarter of 2012, Hasbro adopted a program to save up to $100 million annually by 2015. Gross savings for 2013 are expected to be $45 million — $48 million, leading to an expected net savings of $13 million to $15 million, excluding potential pension charges.

Our Take

After six consecutive quarters of top-line miss, Hasbro’s revenues beat the Zacks Consensus Estimate this time and grew year over year as well. We continue to have a favorable view of the company’s persistent efforts to curtail costs and improve earnings amid a sluggish operating environment. The company is in a restructuring mode, which involves several brand building and cost saving initiatives.

However, we would prefer to remain on the sidelines at the current level and wait until there is further clarity on the aforesaid initiatives. Further, the Boys products segment, which was once a powerhouse brand of the company, continues to remain sluggish in the recent times. Hasbro currently carries a Zacks Rank #3 (Hold).

As a point of reference, one of the major toy companies, Mattel Inc. (MAT - Free Report) which reported last week, beat both earnings and revenues estimates in its first quarter. Some other toy companies which will report their earnings in the next month include LeapFrog Enterprises Inc. and Activision Blizzard Inc. (ATVI - Free Report) . LeapFrog is slated to report on May 2 while Activision Blizzard will likely report on May 6.

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