Hasbro Inc. (HAS) posted dismal fourth quarter 2013 results with earnings and revenue missing the Zacks Consensus Estimate. Adjusted earnings per share of $1.12 fell short of the Zacks Consensus Estimate of $1.23 by 8.9% and the year-ago level of $1.20 per share by 6.7%. The lower-than-expected earnings reflect sluggish top-line growth mainly due to weak sales in the domestic market during the holiday season.
On a reported basis, including favorable tax adjustments, restructuring charges and partial pension settlement charges, the company posted earnings per share of 98 cents, down 1.0% year over year.
Hasbro’s net revenue of $1.28 billion, remained flat year over year. However, it missed the Zacks Consensus Estimate of $1.30 billion by 1.5%. Persistent weakness in the Boys Category, which accounts for about one third of total revenue, was partially offset by growth in the Girls and Games categories. Revenues include a positive $2.3 million impact from currency translation.
Behind the Headline Numbers
Hasbro’s product segments comprise Girls, Games, Boys and Preschool categories. Games category revenues grew 2.0% to $437.4 million. Brands like Magic: The Gathering and Monopoly performed well in the reported quarter.
The Girls category surged 19.0% year over year to $348.8 million. Products such as The Furby and My Little Pony supported revenue growth. Also, My Little Pony Equestria Girls and the launch of Nerf Rebelle contributed to total revenue.
Preschool category revenues dipped 1.0% to $146.4 million. Despite decent performance of the Transformers and Nerf, the Boys category plunged 16.0% to $349.1 million due to a decline in sales at Marvel and Beyblade brands.
Segment-wise, net revenue from the U.S. and Canada segments declined 11.0% year over year to $539.2 million owing to reduced sales in the Boys and Preschool categories. The segment’s operating profit also declined 22.0% to $70.0 million.
International segment revenues grew 9.0% to $660.3 million. Revenues in the International segment reflect an increase of 8.0% and 17.0% in Europe and Latin America, respectively, partially offset by a decline of 2.0% in Asia Pacific.
The segment’s operating profit was up 14.0% to $119.5 million from the year-ago level.
Entertainment and Licensing segment revenues increased 16.0% year over year to $76.2 million, driven by growth in lifestyle licensing as well as the addition of Backflip Studios to the segment. The segment’s operating profit increased 9.0% on a year-over-year basis to $28.9 million.
Hasbro’s cost of sales ratio increased 160 basis points (bps). Its selling-distribution-administration expenses ratio declined 50 bps while there was a 40 bps increase in royalty expenses. All these led to an operating margin decline of 130 bps to 14.3%.
Full-Year Update
For 2013, adjusted earnings were $2.83 per share, up 0.71% year over year. However, it missed the Zacks Consensus Estimate of $2.90 by 2.4%. The company’s net sales were $4.08 billion, almost flat year over year. The top-line figure includes a $3.7 million favorable impact of foreign exchange. Full year revenues missed the Zacks Consensus Estimate of $4.11 billion by 0.7%.
Share Repurchase and Dividend Hike
Hasbro increased its quarterly cash dividend by 8.0% to 43 cents compared to the previous payout of 40 cents per share.
During 2013, the company repurchased 2.3 million shares of common stock at a total cost of $102.5 million. The company has $524.8 million available under the current share repurchase authorization.
Our Take
Hasbro missed the Zacks Consensus Estimate on both lines in the fourth quarter primarily due to the weak performance of the Boys segment in the U.S. and Canada. However, adoption of a long-term cost savings program, persistent share repurchase activity and dividend payout should bode well for the company, going forward. The company targets $100 million in annual savings by 2015 driven by its cost savings initiative.
Hasbro presently has a Zacks Rank #3 (Hold). Take-Two Interactive Software Inc. (TTWO) is a better-ranked stock in the same sector with a Zacks Rank #2 (Buy).
Other toy makers such as, LeapFrog Enterprises Inc. (LF) and JAKKS Pacific, Inc. (JAKK) are slated to report quarterly earnings soon. While LeapFrog is set to report on Feb 12, JAKKS Pacific will likely report in the third week of February.
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