Hasbro Inc. (HAS), one of the largest toy makers in the world is slated to release its first-quarter 2011 results on Thursday, April 14, before the market opens. The current Zacks Consensus Estimate for the first quarter is 17 cents per share, representing a 34.07% year-over-year decline. The Zacks Consensus Sales estimate for the first quarter is $ 660 million.
With respect to earnings surprises, Hasbro has outperformed the Zacks Consensus Estimate in all the trailing four quarters. The average earnings surprise was a positive 23.37%. This implies that the company has beaten the Zacks Consensus Estimate by this magnitude over the last four quarters.
Previous Quarter Performance
The Pawtucket, Rhode Island–based company reported its fourth quarter 2010 earnings of 99 cents per share, which were well ahead of the Zacks Consensus Estimate of 95 cents but below $ 1.09 per share earned in the year-earlier quarter. The better-than-expected results were driven by tight cost-control initiatives, which more than offset the muted growth in sales.
Hasbro’s net revenue of $ 1,278.7 million in the quarter was down 7.2% year over year and fell behind the Zacks Consensus Estimate of $ 1,300.0 million. Foreign exchange fluctuation had an unfavorable impact of $ 23.5 million.
For full fiscal 2010, earnings per share were $ 2.74 versus $ 2.48 in 2009 while revenue declined to $ 4.0 billion from $ 4.07 billion recorded in the prior year.
Hasbro experienced worldwide net revenue growth in two of its four major product categories, namely Girls and Pre-school. On an annualized basis, the Girls category increased 10% to $ 298.7 million, the Pre-school category grew 4% to $ 142.5 million while the Boys product category slipped 1% to $ 419.9 million and the Games and Puzzles category plunged 22% to $ 417.5 million.
Geographically, net revenues from the U.S. and Canada region declined 20% year over year to $ 604.8 million, while its operating profit plummeted 54% to $ 71.0 million. The International segment reported net revenues of $ 617.9 million, up 12% year over year. The segment registered an operating profit of $ 129.7 million, reflecting a 35% year-over-year rise.
Outlook
The toy maker expects a year-over-year increase in revenues and earnings per share for 2011.
Estimates Revisions Trend
Estimates for the coming quarter remained unchanged in the last 30 days, implying that the analysts are maintaining their view on the stock.
Agreement of Estimate Revisions
In the last 30 days, out of 15 analysts covering the stock, 1 analyst increased the fiscal 2011 estimate, while none of the analysts moved down. Additionally, for the first quarter of 2011 and fiscal 2012, none of the analysts raised or slashed their estimates, implying an absence of any near term catalyst.
None of the analysts made any revision to their forecasts over the last 7 days, thus providing no clear directional pressure.
Magnitude of Estimate Revisions
Over the past 30 days, Hasbro’s estimates for the upcoming quarter did not budge. Therefore, the analysts expect the company to report in line.
The current Zacks Consensus Estimates for 2011 and 2012 are $ 3.09 (up 19.43% year over year) and $ 3.56 (up 14.97%), respectively.
Our Take
Hasbro is operating in a tough environment. The company experienced a dip in total revenues in the fourth quarter of 2010 as demand for toys was below its expectations during the crucial holiday season due to adverse weather conditions and price increases by retailers. This will lead to lesser orders from retailers in the first quarter of 2011 since they already have sufficient inventory on hand after a sluggish holiday period.
Moreover, a late Easter Holiday and continuation of inclement weather conditions in the month of January will further reduce the sales of the company. Hence, we view the first quarter as challenging.
Hasbro’s quarterly earnings beat was made possible by its cost-cutting initiatives and not revenue growth. In an environment of increasing input costs, we believe it would be challenging for the company to sustain its earnings momentum. Apart from commodity costs, management also anticipates higher wage inflation in manufacturing hubs like China.
However, we believe Hasbro’s strong product line-up slated for 2011 and 2012, shift to broadcasting media, strategic association with Discovery, Universal Pictures, Electronic Arts and Mediaset as well as aggressive penetration into emerging markets will augur well for investors. The company’s joint venture with Discovery Communication called ‘HUB’, which was 25–30 cents dilutive to earnings in fiscal 2010, is expected to be accretive in 2011.
The company is generating strong growth out of popular items such as the Marvel and Transformers toy lines. In 2011, Marvel will deliver Thor and Captain America, the First Avenger to theaters globally. “Transformers 3” is scheduled for a July 1 theater release, with the product likely to hit the shelves in mid-May. In addition, Lucasfilm and FOX recently announced that the Star Wars Saga would be converted to 3D, with Star Wars Episode 1, the Phantom Menace expected to be released theatrically in 2012.
Hasbro’s revenues from entertainment and licensing category declined to $ 136.5 million in 2010 from $ 155 million a year ago. This was primarily due to a decrease in movie-related revenues generated by “Transformers” and “G.I. Joe” entertainment properties.
Accordingly, Hasbro has been trying to come up with a new and improved “Transformers” brand, which has so long been profitable for Hasbro, in order spur sales. In mid-March 2011, Hasbro sealed a deal with Jagex Limited to jointly develop a new online game based on the “Transformers” brand.
Hasbro’s management expects 2011 to be Hasbro’s first year in the digital arena when the company markets the hugely popular “Transformers” multi-player online game in China. Moreover, in partnership with global retailers, Hasbro will have Transformers toys and games, licensed consumer products and digital games across all platforms in mid-2011.
Hence, Hasbro currently retain a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We are also maintaining our long-term Neutral recommendation on the stock.
One of Hasbro’s primary competitors, Mattel Inc. (MAT), the world’s largest manufacturer of toys is expected to announce its first quarter results on April 15, 2011. The Zacks Consensus EPS estimate is 5 cents and revenue forecast is $ 907 million.
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